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Almost every day we hear about a new, ambitious tech startup planning to disrupt global markets.
Many die without trace or notice. Worse, many others flounder along for years, lacking funding, market access, business infrastructure and heft but still chasing the ever more distant dream.
There are some local businesses, however, that can and are taking on ambitious development projects, going to market with strong and experienced sales and marketing teams and are not starved of cash – our medium-sized and large IT service providers.
These companies are a mostly unheralded font of innovation and that is a shame because they have one highly significant asset most startups lack: scale.
Scale is especially important for any innovative disruptor planning to win business from inherently conservative and risk-averse businesses and government agencies.
Most readers will have heard of Datacom, perhaps less of Intergen and Fusion5, but those that have will probably think of them as contractors, consultancies or infrastructure outsourcers.
Many of these companies, though, are nurturing software and platform startup businesses as by-products of their daily activities.
Those daily activities, providing services and consulting, have delivered deep domain knowledge of the requirements of industry verticals as well as the opportunities for horizontal market software plays.
Let’s have a look at some examples.
New Zealand’s biggest ICT service provider, Datacom, is also quietly attacking the market for local government management software with a new enterprise resource planning (ERP) product.
Called Datascape, the software is designed to leapfrog the competition by being developed for the cloud and as a centrepiece of council ambitions to develop so-called smart cities.
To succeed, it has to take on Australia-listed local government software powerhouse Technology One as councils move into their upgrade cycles and into the cloud.
Datacom has already won users such as Porirua City Council locally and the Shire of Manjimup in Australia, deals that would be all but impossible for a small independent developer to win.
Such customers need to know there is a company with heft and commitment behind the software they select because it will need to be supported and developed for the next decade or more. No one wants to be stranded on an unsupported platform.
Datacom can also deliver implementation and integration services to customers from its local and Australian offices.
Microsoft specialist Intergen, meanwhile, has developed an enterprise content management system called Cohesion, closely integrated with Microsoft’s ubiquitous Office suite and Azure cloud.
With many companies operating with flattened management structures in increasingly complex regulatory environments, demand for enterprise content management is going through the roof right now.
Cohesion has already won 11,500 user seats across several government departments over the past few years and Intergen’s Australian parent, ASX-listed Empired, is preparing the ground across the ditch to push the product into the market there.
Let’s have one more.
Last year, after three years of development, local Oracle specialist Fusion5 unveiled what it hopes would become the next generation of HR software, called Jemini.
Jemini boasts a radically different social interface, support for touch screens and integrated tools to manage and support staff along with sophisticated analytics.
Fusion5 was no stranger to the HR software market when it set out to develop Jemini. It already had 320 customers using human capital management software provided by the company, including those using two packages it had bought from Christchurch-based Jade (EmpowerHR and Jade Star).
Toyota NZ and law firm Anthony Harper are early Jemini customers.
Once again, Fusion5 has the kind of heft corporate customers require, with 400 staff and about $80 million in turnover.
While great pure startups such as Xero have been seen taking local and international markets by storm, raising huge amounts of capital and hiring top people to develop both software and channels to market, it is a standout, or “unicorn,” and it is not targeting the high-end corporate applications market.
Because most of the examples given above are aiming to win corporate clients, they needed to take a different approach and speak a different language.
For the likes of Datacom, Intergen and Fusion5 (and no doubt others) that is not a big stretch. They already speak that language to service their many existing corporate clients.
They also have existing relationships with and contacts in potential customer organisations.
So, are these stealthy startups the key to our future knowledge-based economy?
Icehouse chief executive Andy Hamilton said there is one problem with that idea. Given that only about one in every hundred startups is truly “smoking” and many fail, local corporate innovators would have to spin up a lot of startup efforts to find one that breaks through.
Because of their domain knowledge, scale and other attributes they may be able to improve that run-rate considerably but they would still need to initiate several to find one that succeeds.
An alternative route for these larger companies was to partner with a smaller startup or even look at mergers and acquisitions, Hamilton suggested.
Xero was also an example of how a single company can create a huge ecosystem of innovation, with its many partners developing add-ons to the core Xero application, he said.
Another potential problem is that corporate managers can be risk-averse, conditioned to say no rather than yes.
At the root of it is the culture of the organisation. If they have a culture that supports innovations, Hamilton said he is all in favour. If not, they could still look toward the partnership model.
Exactly how many “startups” these larger tech organisations embark on is, of course, unknown. Their failures are largely kept to themselves.
But the ones that are emerging are impressive and ambitious.
We will get back to you as soon as possible.