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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.

But 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.

That 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.

Patricio Robles

Published 17 June, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2381 more posts from this author

Comments (5)

Saman Mansourpour

Saman Mansourpour, Partner at TheAgency

I think it needs to be clarified that start-ups don't always mean "new initiatives" products or services, as often that is actually where the risk lies. More often than not a start-up will take a proven technology, product or service and simply offer it in a more relevant way.

In situations like these, the risks are obviously much lower. Equally, short term trial contracts are often a very good way to test a new company, without signing up for life.

Having been at the helm of a start-up no less that four years ago, I know how difficult it is to get buy-in, even with existing business contacts. However, those that embraced us have reaped the rewards more than ten fold, financially and service wise. Once a start-up gains traction it is no longer a start-up, and you can miss out on a very fruitful commercial partnership if you don't jump in early.

about 5 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Sam,

"Once a start-up gains traction it is no longer a start-up, and you can miss out on a very fruitful commercial partnership if you don't jump in early."

This may be true in some cases, but I think companies should be careful about buying into the notion that if you don't bet on a startup early on, you'll never have the chance to work with it once it's successful.

Just because a company is established and thriving doesn't mean that it loses interest in forming relationships with other companies. In fact, I'd argue that in many cases, it's very productive to seek out partner relationships with established companies.

Here's why: in my experience, many startups are like SCVNGR. They don't know exactly where they fit in, so they have a very limited filter when it comes to which opportunities they explore. In other words, they'll consider partnering with just about anybody who looks legitimate. The minute they change focus, or something that seems better comes along, they become distracted.

Pursuing partnerships with established companies is usually different. The filters are better, meaning you get a much more realistic signal about the viability of the relationships you're trying to develop.

about 5 years ago

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Rodney Strike, eCommerce Manager at Digital Stores Group

For me, its all about doing due diligence/research who ever the supplier is. If its a start up you may look at who the directors are and if possible speak to people that they have worked with in the past. After all you are buying in to the people and not the company if they are a start-up in most cases.

There is also an argument to say that as a start up they may work harder to win your business than a traditional supplier who is beginning to rest on their laurels. I would definitely ask for supporting evidence from a start up than just believing what they tell me.

So regardless of the age of the company, I think you should always do some research of a supplier.

about 5 years ago

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Paul Squires

Patricio, thanks - this is a wise and useful article; I run a startup and agree with all of the points.

Pity about the sensationalist headline!

about 5 years ago

Dave Wieneke

Dave Wieneke, Director of Digital Strategy - ISITE Design at www.UsefulArts.us

Nice post Patricio,

When you partner with a firm, their weaknesses immediately share through to your projects.

This makes reading an agency and its stress points is a client-side survival skill. I have similar observations about digital agencies which (like many) try their hand at offering platform services.

As you suggest, committment and long term focus to the segment they're trying to go-deep on seems to be an x-factor in success.

Here's my post on when digital agencies expand their business models - http://usefularts.us/2010/06/09/bigbad-design-magic-hour-fable-vision/

about 5 years ago

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