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How small IT vendors can win big accounts
CIOs are willing to buy from small players - they just need the right approach...

By Sylvia Carr

Published: Friday 18 February 2005

Despite the perception that large user organisations - particularly the multinationals - shy away from buying IT from small UK vendors because of fears the company they choose won't be able to deliver or (worse) will go under, there are plenty of success stories.

But that doesn't it mean it's easy for the little guy to get his foot in the door.

Expect scrutiny of the kind start-ups get from potential investors. If a big business is going to buy from a small company, it's going to want to make sure the financials - including revenues and the quality of VC funding - and management team are solid.

JP Rangaswami, CIO of bank Dresdner Kleinwort Wasserstein, has bought from hundreds of smaller vendors and early stage companies.

He says: "We find out how these people came together. If they have something special that brought them together they have a better likelihood of getting through the difficulties of being a start-up."

He also looks for a sameness of vision, making sure the vendor is headed in the same direction as his business.

Phil Young, head of IT operations at Amtrak Express Parcels and a buyer from small IT firms, agrees with these criteria and points out he also "makes sure there's a really good contact in place, one that's looked at by solicitors, to make sure the contract is beneficial to both parties".

The management pedigree was one aspect in Rangaswami agreeing to work with London-based Propero, which makes tools that enable on-demand software delivery within an enterprise.

Propero co-founder and joint MD Robin Crewe had been deputy CIO at DrKW, so there was an element of trust and "shared business context" from the beginning, according to Rangaswami.

But that doesn't mean every one of the small businesses he's worked with has personal connections. In fact, Rangaswami's decision to buy from vendors almost never has to do with their size. "It has much more to do with the vision they have for their product set... what category they're trying to create and whether they have the emotional stamina and money to do it. Size almost never enters the frame," he says.

CIOs who've chosen to go with small IT vendors stress the benefits including flexibility and excellent service. When you're a large customer to a small company, you get quick responses - and access to the MD, not just a project manager.

Quality of service was how NetDespatch, a Marlow-based web services company, won over Young at Amtrak Express Parcels. The relationship started with NetDespatch moving Amtrak's collection service online in 2002. When that project was done well Young went back to them to put the despatch service online two years later.

"They've proven to us they can deliver on time to the quality expectations we have - and on budget," Young says.

"It's a personal choice thing but I prefer the smaller supplier," Young continues. "They've got flexibility... If I say I need it now, they know I'm not joking. If I say that to BT, they are slower to react."

It's not all about service, though - small IT vendors must provide the right technology at the right cost.

It was these two factors that enamoured bank HBOS of data warehouse solutions provider Kalido, which is based in London. When HBOS was created through the merger of Halifax and Bank of Scotland in 2001, its executives needed to get a clear idea of how much the new business was spending, despite the fact that many disparate database systems were in use.

According to Sharon Reason, procurement performance manager at HBOS, Kalido was "the only company with something that would work realistically" - and without years of development.

Had they gone with a solution from an Oracle or a Hyperion - or built one themselves - a project of that size would take years and cost millions, she explains. "We needed something that was delivered now."

The Kalido deployment took three months, Reason says. She appreciated how much influence they had over the product too, which she didn't think they'd have had if they'd gone with a larger vendor.

"I've never been to a user group where they asked what features you want and next year they show which ones they've checked off the list," she says.

Kalido, of course, had the benefit of being a spin-off from Shell - and thus could list that multinational as its first customer and Unilever, a Shell customer, as its second.

For companies that don't have such fortunate beginnings, partnering with bigger names who will sell products on their behalf is one way to get a foot in the door.

Maxine Holt, senior research analyst at Butler Group, says: "That's the best route - because it gets the name known and gives [the small vendor] more of a customer base."

Charles Ward, COO of IT trade organisation Intellect, agrees that partnering can make all the difference for a small company trying to attract large customers. However, attracting a partner can be as hard as winning a customer.

"SMEs often don't make it clear what they provide or how they're different from everyone else, or why a partner or end user should notice them," he says.

Though he admits the environment for small IT vendors in the UK is not bleak, the need for partners has increased as more and more user organisations are buying solutions as opposed to just components which they put together themselves.

If a SME sells one component, the buyer will go through an integrator or solutions provider.

Because of this, Ward explains, "SMEs have got to decide in market planning, is the best route to market through partners or direct?"

Of course, all this is moot if the small vendor does offer something unique. "If they are truly innovative and have something with no competition, then path is usually clear," he says.

The difficulties arise when SMEs don't have that uniqueness and if the buyer can get the same product from a large company. Ward says: "If there's any unease about the small company - if they don't have the references, for example - then [the buyer] may go with the bigger one. That's natural."

Heads of IT don't deny there's an element of risk buying from small vendor compared to a big name. But they also stress they're willing to take this risk because of the competitive advantage they can gain.

Amtrak Express Parcels' Young says: "By using a third party, I'm expanding my resource pool and can get to market faster with products."

DrKW's Rangaswami says: "One way we can steal a march on competitors is to be somewhat more adventurous than competitors. That means we have to push farther than peers."

"I am prepared to be the number one customer [but] I have a high propensity for risk," he admits.

Analysts warn against being a small company's only customer, though.

Bob Tarzey, service director at Quocirca, says small businesses shouldn't have more than 10 per cent of revenues coming from one customer. He warns IT buyers that to account for more than that is too much of a risk.

"It's a good thing up to a point," he says. "But if you're the only customer... it's a dangerous position. You might as well buy them."

Butler Group's Holt agrees: "As a customer you wouldn't want a vendor to have all its eggs in one basket. There's risk on both sides."

The biggest danger of going with a small IT vendor, though, according to Rangaswami is when that company goes on to bigger and better things. "The downside is when they succeed, I will become a bit part player. I won't be as important anymore."

You can catch up with dozens of quality early-stage growth companies at the UK Technology Innovation and Growth Forum, which runs 14 to 15 March 2005 at the London Hilton Metropole. For more information, click here.