Are you in business or procurement, responsible for selecting a cloud vendor to collect, process and/or hold enterprise data? If so, this post is for you.
Key Venture capitalists like Fred Wilson are finally sounding a cautionary alarm on the availability of funding to startups. This includes B2B startups in the retail space.
In the same article, Venky Ganesan of Menlo Ventures was quoted as saying:
We are getting close to the end of the cycle. The clock is getting close to 12 and the Federal Reserve is taking away the punch bowl. The sugar high of low interest rates and a very accommodative Federal Reserve is going away, and we are going to see a major downturn. Time to find your seats because when the music stops, it is not going to be pretty. While I am very optimistic for the long run (five to seven years), the short-term forecast is cloudy with a good chance of rain.
Selecting a vendor without considering financials and profitability in the current economic climate is reckless. It puts the retailer and their operations at risk.
Let’s consider startups. Startups get a lot of press coverage and so they should. They tend to disrupt established industries and provide novel solutions to transportation, accommodation, food delivery, and many other industries. We feel the effect of startups on our daily lives and are better off for them. However, trusting your sensitive corporate data to an unprofitable startup, as most startups are, is not adventurous or novel. It is reckless.
What happens when there is an economic contraction and said startup doesn’t get their third/fourth round of financing? Here is the cold hard truth: You are given less than 4 weeks to find something else.
Most enterprises are not able to move their data, re-integrate and retrain in this time frame. When this happens, you, the buyer don’t look innovative or novel. You look bad. You have failed to consider the risks and failed to mitigate them.
This is a problem too few are willing to discuss. The startup ecosystem is largely driven by venture capital and no one wants to admit the emperor has no clothes.
There has been very little press on the risks posed by selecting vendors who are investor-funded and not profitable. There has been almost no press on the risks involved. There is little press on financial viability when choosing a vendor. The risks are enormous and dark ominous clouds are forming.
Use Case #1
Fieldbook, a web-based app that transformed spreadsheets into databases. The company’s platform offered users the features of spreadsheets and databases combined by allowing attachments, formulas, reporting, detailed views, importing existing data, data mapping, collaboration, and more. They achieved an $11M valuation and raised $3M in venture capital. Founded in 2012 on May 11, 2018 they announced they were shutting down and gave customers until June 15, 2018 to export their data.
By early 2018 we were still under $60k ARR, and we couldn’t see how we were going to increase our growth rate fast enough get profitable soon enough or to otherwise justify our existence. – Jason Crawford, Co-founder & CEO, Fieldbook.
Use Case #2
Primary Data, a data visualization startup, shut down over a single weekend in January 2018. They had initially raised a $100M and even attracted Apple co-founder Steve Wozniak to their management team.
“Putting financial leverage on companies with high levels of operating leverage, minimal tangible assets, and/or the ability to generate cash flow is irresponsible.” These companies and other unicorns tend to be “highly reliant on capital markets and have very pressing debt issues,” – John McClain, Portfolio Manager, Diamond Hill
If business continuity and risk mitigation matter to your business and your operations, you have a responsibility to choose your technology vendors wisely, now more than ever.
About the Author:
Fabien Tiburce is the Founder and CEO of Compliant IA, a cloud-based retail audit and store checklist app. Compliant IA has been profitable every year since 2009, is self-financed and debt-free.