Siliconcowboy's Blog

Technology, journalism, social media and social responsibility

What Startups Really Need: Trustworthy Partners

Yesterday, the folks at RacePoint Group public relations published a blog called, “Startups & Innovation: The Key to an Economic Recovery?

That blog, in turn, was inspired by an earlier blog by Steve Lohr of the New York Times called, “To Generate Jobs, Nurture Startups (Big or Small)“.

Both blogs attempt to find the Holy Grail of startups, a.k.a., what makes some successful contributors to the economy while others fail.

The New York Times suggests that it’s all in the math. After a certain point, if a startup is still in existence, the odds that it will grow and take on more employees increase to a sustainable level.

RacePoint’s blog, written by Kyle Austin, suggests that startup incubators that offer consulting and mentoring provide the juice that startups need.

Obviously the New York Times is writing from the point of view of someone who may be interested in investing in a startup after it has overcome early stage risk factors, but that’s part of the problem: if you’re too afraid to invest in the company when it is first hatched, you’re not doing it any kind of service whatsoever by just standing around watching to see if it will fly.

I like RacePoint’s idea better. Incubators are a good idea, and consulting and mentoring are great ways for company founders – typically engineers with no marketing skills whatsoever — to learn how to bring their ideas to market in a strategically smart way.

I also like that RacePoint didn’t go down the road of pandering angel investor mash-ups for sale, which as Jason Calacanis has famously noted, are often sleezy money-grabbing events organized by second-rate VCs who generally have little interest in funding the startup anyway. (He responded to the trend by co-founding Open Angel Forum, which now holds free angel funding conferences around the world.

And in fact, as the San Francisco Chronicle’s Tom Abate noted in a great article published on Sunday, most startups are no longer looking for an IPO; indeed, their primary growth strategy is to be acquired.

In that light, RacePoint’s proposition, while useful, doesn’t go far enough. It needs to consider the risk factors to being acquired…and chief among these is the risk that your business partners will scuttle your plan.

Whether their strategy is an acquisition or IPO or simply staying private, the real key to a startup’s success – and therefore its ability to make an impact on the economic recovery –  is the trust established with its business partners and customers.

To illustrate what I mean, allow me to turn that thought around and show you what can go wrong when a startup collaborates with untrustworthy partners:

  • Employees, ideas or information are stolen
  • The company embarks on an intensive project, but is never paid or is underpaid on delivery
  • The company’s technology is re-engineered by a partner, who then sells it as their own product
  • The company is acquired by a partner, but its product is never developed or its key employees leave
  • The company’s growth is quashed by larger partners or customers who are unwilling to acquire them, but make it extremely difficult to work with other companies in the industry.

You get the idea. This kind of activity happens all the time, and it happens because more established companies feel they can freely take advantage of the smaller, more vulnerable startup for their own economic benefit. And indeed, in our capitalistic, dog-eat-dog world, a lot of larger companies feel compelled to practice this behavior if only because “If I don’t, my competitor will,” or, “My board will have my head if I don’t take that company’s technology off the market.”

This is what kills innovation, chokes the startup and devalues an acquisition. This is what keeps our economy down.

But it’s pervasive, and it’s extremely hard to stop. Arresting this behavior requires corporate America to draw upon its own sense of ethics and embrace a deeply held belief that such tactics are not necessary to stay ahead of the game. Corporate America tends to reward companies that bend the rules, but our economy relies on businesses that play fair.

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This entry was posted on September 14, 2010 by in Social Responsibility, Tech Trends and tagged , , , , , , , .
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