How data center pros do due diligence on startup software firms

IT managers that go with smaller systems management companies for flexibility or pricing benefits should research potential vendors' viability in this down economy.

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IT managers looking for an edge on systems management may forgo established vendors and work with best-of-breed offerings from smaller startups.

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But do the benefits of lower price or functionality outweigh the risk that a new vendor might not be in business down the road? Some data center pros who took the risk outlined ways companies can protect themselves when dealing with startup vendors for data center management software.

Karl Fosburg, the director of systems integration at Hughes Network Systems, for example, dumped an established vendor for a startup. Fosburg's focus is keeping IT service availability as high as possible, and Hewlett-Packard's HP OpenView didn't cut it.

Based in Germantown, Md., Hughes used OpenView network node manager to monitor custom applications and network components, but Fosburg said OpenView was too difficult to customize and couldn't keep up with Hughes' growth.

When you put in an enhancement request at HP, it sits in a queue.
Karl Fosburg,
director of systems integrationHughes Network Systems

"We needed to either completely re-architect how we used OpenView products or go back to the drawing board," Fosburg said. He opted to go with a smaller company that was more willing to work with his specific problems. He chose Reston, Va.-based ScienceLogic's EM7 software.

"We had a lot of unique requirements, so we didn't even bother talking to the bigger vendors," Fosburg said. "We really wanted to focus on a more agile company we could work with. When you put in an enhancement request at HP, it sits in a queue. We weren't a big enough customer for our enhancement requests to get honored. We wanted to work with a smaller company that would work with us directly."

Selecting a startup vendor
So how does a publicly traded company managing thousands of servers vet a systems management startup to support its entire IT operations? Fosburg said Hughes' legal team reviewed potential vendors' books, and evaluated the companies' financial credit histories, business plans and reference customers. But he also recommends investigating the vendors' executives.

"Talk to the heads of the company itself, which you can demand from a small company," Fosburg said. "Look at key managers' résumés, and see where they've come from. The fact that they'd go from the comfort of an IBM or EMC shows me that they're putting their money where their mouth is."

Mary Jo Mcelroy, the vice president of information services at Columbus, Ohio-based healthcare provider, Ohio Health experienced similar frustration with the Big Four and opted to switch to a young, lesser known vendor.

Ohio Health had implemented IT Infrastructure Library (or ITIL) disciplines, including IT service continuity management, incident management and change management. According to McElroy, the company spent three years and more than a million dollars trying to implement CA's Unicenter Service Desk to help manage the process improvements, and eventually gave up on the tool.

Instead, Ohio Health turned to Software as a Service (SaaS)-style IT management software provider Service-Now.com. The Solana Beach, Calif.-based startup responded to McElroy's request for proposal and won the bid, but not without having to overcome some reservations.

"The guys that started Service-Now came from Peregrine {Systems], and we were a little afraid that the lawsuits associated with the company would come back to haunt us," McElroy said.

Choosing a startup: Key considerations

Here are some considerations for evaluating a potential vendor:

  • Who is on the company's executive team?
  • What venture capital firms or partners are backing the startup?
  • Do analysts have anything say about the company?
  • Who are the significant partners that the startup works with on a regular basis?
  • What customers is the startup also working with?
  • What are the company's revenues compared to debts?

Ohio Health took steps to protect itself, putting money into escrow and meeting with the executive team.

The pay-as-you-go SaaS nature of the offering also mitigated Ohio Health's risk. "If you don't like them in three years, at least you haven't invested $2 million ," McElroy said. "It's like any other technology; you're going to take a chance."

When going with smaller tech vendors, some buyers require special protection. Larry Warnock, the CEO of Phurnace Software said escrow arrangements are fairly common for large companies buying from IT management software firms like his startup.

"When large companies do business with us, we will often put our source code in an escrow agreement. If something happens to us, you get the code libraries to continue using and supporting the software. Most big companies like that, as they have the resources to extend the tools," he said.

For young companies in this economic environment, debt is a major concern and prospective customers need to be aware of the vendor's situation, according to Liam McGlynn, analyst with Enterprise Management Associates. "I would look at revenue growth for the past three years and balance that with debt. If they are in Round A of venture capital funding, how much have they burned?"

In a down economy, caveat emptor
In times of economic stress, there's a temptation to opt for new vendors, especially if they appear much cheaper than your established partners, said Robert Crawford, a lead mainframe systems programmer in Texas. But that temptation can lead to trouble in a volatile economy.

"A bankrupt software vendor can leave you with an unsupported system and no source code. There's also the possibility of a strong vendor buying a struggling company and forcing unfavorable contract terms. And there's the chance a supplier may not go broke but have to lay off support personnel, thus weakening its ability to service customers," Crawford said.

Noah Broadwater, the vice president of information services at Sesame Workshop (the production company behind Sesame Street) is even more hesitant to try a startup software firm.

"We use a lot of open source [software] because it's really cheap. You can dabble in it, and if it doesn't work out well, you haven't lost much money," Broadwater said. "But when you talk about data center management software, if you screw it up or the company goes under, you're data center is at risk."

Broadwater suggests trying out smaller companies on small projects and going with open source providers as methods to offer peace of mind.

"I feel safe going with smaller companies that are using open source," Broadwater said. "You won't be stuck with a proprietary solution with no one to support it and no one to help you through it."

Matt Stansberry is the Executive Editor of SearchDataCenter.com.

Note: This is the third article in a series on smaller IT systems management vendors competing with the Big Four systems management providers in enterprise data center management. The series explores the pricing and functionality advantages that smaller vendors bring to the table while weighing the strengths of the incumbent framework vendors. Part one explored Web monitoring tools.

Have your admins openly rebelled against OpenView? Would you trade that "single pane of glass" for point products that work? Are you sick of training staff on 20 different vendors' tools? Email Matt Stansberry at SearchDataCenter.com about your IT management concerns and story ideas. Write to him at mstansberry@techtarget.com.

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