When evaluating startups, evaluate yourself: will you be a good customer?

Last week, I was privileged to support the annual Female Fintech Founder competition run jointly by Google, Deutsche Bank and Atos. The competition seeks to find the most promising early stage fintech companies founded by women, and to provide the winners with support for the next stage of their success. (And to provide all the participants with advice and networking opportunities.)

At the heart of the session I attended was a great presentation by my colleague Prue MacKenzie. You can read more about that here.

I can’t improve on Prue’s advice, but the session did prompt me to think about how established companies work with new companies, and whether they always get it right. Many of the founders taking part in the competition will offer their services directly to consumers, but many will have corporates as customers or partners. Founding a company takes great courage, especially in times of great uncertainty. Whether they win the competition or not, all of the founders have already taken a greater risk than any I have ever taken in my career. I think that they deserve customers and partners who think deeply about how to work with them.

I’ve had some experience in venture investing, but most of my experience of working with startups is as a buyer, an architect and an integrator. I know that I have made mistakes in the way I have played these roles, and suspect that I am not alone. I’ve learnt to ask myself a few questions to help me work with startups more effectively, and thought it might be helpful to share them here.

Would a ‘no’ be better than a ‘maybe’?

Large corporates are approached by new companies all the time. Figuring out where to spend your time is part of the day job. Yet it is always worth remembering that, however precious you consider your time to be, the time of the founders of an early stage company is even more precious.

If you are part of a large company, then business goes on while you are listening to a potentially interesting startup. Your team carries on working around you, and tasks go on being completed. But if the founder and leadership team are speaking to you, they are not speaking to anybody else. You are the sole focus of their attention.

We are all human beings, and we don’t like to disappoint other human beings. It can seem rude or disrespectful to say ‘no’ at the end of that meeting, especially if you find the idea interesting and the founders inspiring. It might seem easier to say ‘maybe’: maybe we should meet again in a month or two when the budget cycle has moved on; maybe this solution isn’t for me, but I can connect you to someone else in the company; maybe we should set up a session with the architects to dive deep into the underlying technology.

Maybe these maybes are sincerely meant, and maybe they lead to the next stage of a potential partnership. But more often they are simply courtesy or social padding: a way to get out of the meeting without embarrassment.

If I find myself trending to a polite ‘maybe’, I try to summon the courage to give a clear ‘no’. And I try to remind myself that this is more useful than a ‘maybe’: it stops two companies wasting each other’s time. And I try to remember the asymmetry between the companies: a large corporate has a lot of time to waste; a startup has very little.

Do you know what lies beyond the POC?

Let’s assume the ‘maybe’ is sincere: even if we don’t get a clear ‘no’ in the first meeting, it’s unlikely that we would get to a clear ‘yes’. It’s reasonable to want to evaluate the product fully, to try to integrate it with your existing architecture and processes, to get a realistic understanding of what exists and what is still on the roadmap. Maybe ‘maybe’ means that the two companies could work together if the product checks out in real life. If that’s the case, then the next stage is usually the POC.

Unfortunately, POCs are full of dangers. The first danger is to proceed without knowing what C you are trying to P. But the second danger is encountered even more frequently: the danger that there are no plans (or funding, or resources) beyond the POC. The startup will do their best to qualify the opportunity beyond the POC stage: to figure out whether there is a genuine sponsor, whether a successful POC will be followed by a genuine implementation, whether there is a way out of the lab and into production. I think it is even more important for the customer to do their own qualification.

If we are working in a large corporate, it is tempting to suppose that these things will take care of themselves. Surely, if the POC is successful, we will be able to generate the internal sponsorship necessary to take it to the next stage. But, if we are honest with ourselves, we will remember how hard it is to get projects funded for the most certain of cases. How much harder will it be to get funding to take a new product from a new company all the way into production? If we can’t see a path beyond the POC, then is it fair to start? Or is it just another protracted ‘maybe’?

What are you going to do to the product?

The early customers of early stage companies are special. As well as giving welcome signals that the company is viable and the product is worthwhile, they provide the first experience of the product in a real world setting, and they are critical in shaping the roadmap. Early customers are often design partners as much as they are buyers and users.

However, this shaping is not always helpful. Large companies tend to be very opinionated about what they need, and have a habit of customising and changing even long established packages. (How many times have you said, ‘this time we’ll configure - not customise’ - and then spent the entire project customising?) An early stage company, keen to please their first customers, may find themselves being swayed further and further from their original vision, resulting in a product which is a perfect fit for one customer, but for which that sole customer now represents the total addressable market.

When you are part of a big company, it is important to remember the disproportionate impact you can have on the companies you do business with, especially if they are just getting started. If you find that you are turning a promising startup into your private engineering team for a bespoke solution, it may be time to think again.

Founding a company takes courage and deserves respect. Demonstrating that respect requires that large companies recognise the disproportionate power and influence they exert - and act consciously to help new companies succeed and grow.

(Views in this article are my own.)