Risky Business

By Allen Bernard

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Deciding to work with a start-up software company can be a daunting decision. What if the company folds in two years (or less) leaving you with no support, updates or patches? What if the product doesn't do what is its makers say it will do, they don't return your phone calls, and you are left holding the proverbial bag?

Yet, ignoring new technology can be perilous as well. How do you find the new products that will help your IT department run smoother or provide a business advantage? Sifting through the maze of sales pitches and vendor promises is one way. But that can be very time consuming -- and time is something most busy CIOs covet jealously.

Enter Insight Ventures, a start-up itself. Based in Woodside, Calif., the company is composed of its founder, entrepreneur Vince Sosnkowski, formerly with Proof Point Ventures, along with seven former Fortune 500-level CIOs, CTOs and IT managers from companies that include United Airlines, Elf-Atochem, Swiss Re America, Merrill Lynch, Xerox, Computer Sciences Corp., and, the now defunct, Arthur Anderson.

These retired IT executives act as CIOs-in-residence (CIR), that review all new technologies and judge whether or not they would be useful to enterprise-level CIOs. From there, one (or more) of 47 Fortune 1000 (F1000)CIOs that have signed on as product reviewers, spend a few hours with the technology and then produce a brief, based on a standardized questionnaire, for all in the group to share.

The company contracts with, and is paid by, start-ups to evaluate their products. If the technology passes the muster of the company's CIRs, only then is it then passed on the 47 outside reviewers for further analysis and Insight gets paid.

While its pay structure could raise some eyebrows, said Sunil Dhaliwal, a senior associate with Boston-based Battery Ventures, and appear to be a conflict of interest, so long as Insight provides unbiased research and value, the company should do well.

"If these guys can maintain a quality screen and air of impartiality ... then I think there'll be a long-term path to success and need for these companies," he said. "If they quickly devolve into being perceived as being paid 'shills' to handful of startups, they will quickly be irrelevant and no one will care what they have to say regardless of whether or not they are right."Although New Vantage and Insight are basically providing a similar service -- risk mitigation -- unlike Insight, Boston-based New Vantage is hired by F1000 CIOs to find and vet new technology companies that are well beyond start-up stage. Typically these companies already have significant revenue streams and at least one F1000 client, said New Vantage Co-Founder Randy Bean.

"We're really addressing, in many respects, the same needs but coming at it from a couple of different points," said Bean of the two different business models.

Insight's services are describe by Insight CIR and former Elf-Atochem CIO and Senior Vice President, Bob Rubin, as the much-sought-after "win-win." But there may be some truth to this catch-phrase, according to the Yankee Group's Phil Fersht, director of Business Application research for the Boston-based analyst house.

"We need a better vehicle for getting start-up companies to market," he said. "It's very important, particularly in the U.S., we continue to innovate with technology and, to do this, the roots come from the start-ups. If you can start a business which can help get (start-ups) in front of the right people, good for them."

Insight and New Vantage not only save CIOs time, effort and guess work, but also aid vendors by getting their technologies into the hands of decision-makers. Most of the time, says Fersht, starts-ups struggle to get recognized because they have no brand identity.

For CIR Eric Dean, the former CIO of United Airlines who was definitely on the hot seat in the days after 9/11 when United was grounded, having a start-up's technology to help with rescheduling tens-of-thousands of passengers was a real definite plus.

"A CIO who is able to keep current with the bleeding edge is able to respond to those kind of challenges with a more useful reaction," says Dean.

Insight and New Vantage also help CIOs by circumventing the normal information gather process. Most CIOs agree their peers are the best source of information about new technology but these folks are all in the same boat with little time to devote to anything new. Relying on internal staff is another way many gather intel, but often IT staffers provide a view slanted by personal affection for certain platforms and technologies.

Then, of course, there is the career risk factor, i.e. choose the wrong technology = loose your job, says Dean. The basic idea behind Insight and New Vantage is to mitigate this risk by having what amounts to a peer-review system for new technology.

"We view the ultimate market that we're trying to serve as the F1000 buyers," said Bean, "and we're trying to bring to their attention new, highly-differentiated solutions that can help them solve a problem that they are unable to solve today through their existing investments and that they're probably not aware of."