If you run a business that’s active online, or are involved in digital marketing in any way, chances are you’ve done business with a startup before.
No big deal, right? After all, today’s hot startup could be tomorrow’s Apple or Google, and even if it isn’t, there’s no denying that startups are a driving force behind innovation.
But should you always trust a startup? Are there times when joining forces with one is a bad idea?
The answer, quite simply, is yes.
Some, sadly, learn this the hard way. Take Vintank, a “digital think tank for the wine industry.” It works with winery clients in an effort to help them apply technology to improve their businesses.
Yesterday, the company detailed on its blog how it was working with a startup called SCVNGR:
Everything was champagne and roses at first. Scvngr offered rewards for
engagement. In a hospitality industry, this seemed like a perfect fit. They
had unique features (taking pictures, answering quizes, etc) and fun mapping
tools called Treks to tie locations together to earn rewards.
Scvngr loved the
wine industry because we represented a use case for regions that could easily
overlay a game layer with mass tourism and strong hospitality culture. For us
it also represented an innovative way to engage consumers in both the digital
world and the physical world and deepen the engagement when people visit any
winery tasting room.
Long story short, SCVNGR, which is backed with millions of dollars in funding from VCs, made big promises. Big promises which, as you may have already guessed, it failed to keep.
Today, SCVNGR has partially ‘pivoted‘ away from the business that brought it and Vintank together; it, like so many others, has entered the daily deals fray.
The lesson learned by Vintank: “make sure vision is supported by
execution and find partners that really keep their promises.” It seems simple enough, but without psychic powers, you can never be sure you’re not betting on a dog.
Fortunately, when dealing with startups specifically, there are some easy ways to spot a probable winner from a probable loser.
Recognize that VC != venture certainty
A VC-backed startup may inspire more confidence than a self-funded
startup. After all, it probably has more money in the bank, and it’s
nice to know that investors have bought into what it’s doing.
there’s a down side to being financed by VC: the company is usually
beholden to the interests of the VC firm(s) paying the bills.
means that the company you buy from or partner with may not be the same
company in six months. If the VCs don’t like the path a portfolio
company is on, they’ll usually have no problem forcing a ‘pivot‘, leaving you alone in a corner.
Look for focus, and domain expertise.
There are a lot of startups building cool things that can be applied
to many industries. But be careful about getting in bed with a startup
hawking its ‘solution‘ to multiple markets. The people behind
these startups may be well-meaning, but if they’re not focused on, and
knowledgeable about, the particular market you’re in, there’s a much higher risk
that you’ll be disappointed by the relationship.
Be wary of inexperience.
Some of the most prominent technology companies were founded by
relative youngsters, making it easy to believe that experience is
overrated. That’s not really the case however. Most new businesses are
started by older, more experienced folk, so forming a relationship with a
startup just because its CEO looks like Mark Zuckerberg circa 2004
isn’t necessarily be a good idea.
A safer bet: dealing with a
startup run by people who have been around the block a few times and
have the accomplishments (and scars) to prove it.
Remember that there’s no such thing as a free lunch.
Be cautious about any startup that wants to work with you in some
fashion, but doesn’t ask you to pay for a product or service. Sure, it
can be difficult for a young company to find paying customers, so
partnerships and other kinds of relationships that don’t involve an
exchange of cash seem perfectly understandable, but at the end of the day, remember: a
company that you have no direct financial relationship owes you no
allegiance, and can walk away from a deal far more easily.
The better option: if you believe in what a startup is doing and think it has value to your business, find a way to pay. If the company refuses to take your money, run — don’t walk — in the other direction.