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CTO Connection
Chad Dickerson
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Legwork that pays off
AS I'VE WRITTEN in this space before, the role of CTO is particularly challenging in a tough economy. The CTO must look for immediate returns on technology investments, balance the need for systems redundancy with the need to keep budgets in line, and generally do more with less. He or she must handle all this without sacrificing momentum in the organization.
In this more demanding environment, no CTO can afford to ignore business fundamentals in choosing vendors and partners. It goes almost without saying that the CTO needs to know how his or her own business works, which means keeping a close eye on the financials and staying in the loop with the sales team to keep a clear picture of what customers are demanding. But the smart CTO will also learn how to evaluate the stability of companies with which he or she might do business. While there is no way to know exactly what is going on inside a company without bugging the boardroom, tools are available to help you determine how a company is doing financially.
A wealth of information about public companies is available in the Security and Exchange Commission's Edgar archive (www.sec.gov) to help in your evaluation. Although the SEC has required public companies to submit their filings in plain English for many years now, the information is not always clear to the average person. But anyone can derive some value from a perusal of a 10-Q statement, a fancy name for a company's quarterly report. Compare the statement of "cash and cash equivalents" on hand to the quarterly losses a company is enduring. Although the ins and outs of accounting are somewhat complex, some simple, common-sense math will serve you well: If a company has $100 million on hand but is losing $300 million per quarter, time is running out.
For private companies, options are limited and you have to act on gut instinct more often than not. Still, you can find a few metrics online. I frequently use Internet VC Watch (www.internetvcwatch.com), a free service that provides the funding history for most venture-funded companies. Most importantly, the funding dates are included, so you can see when the company you are considering got its last cash infusion and how much it got. Just recently, I evaluated two content management vendors. One vendor closed a $10 million round of financing last month, while the other got its last infusion 17 months ago. You can probably guess which vendor left me feeling more relaxed. Working with a vendor that is not under intense and immediate financial pressure means that you are less likely to be on the receiving end of empty promises made just to win your business.
When you are making a big decision, one old-fashioned method works as well as it always has: Visit the company headquarters. Walk around, meet the people who work there, ask some tough questions, and get an overall feel for the place. Using the financial research above, ask about the company's funding and recent customer wins. Meet members of the management team if at all possible and ask to speak with reference customers.
Although these methods seem quite risk-averse, I think it is still important to take informed risks with your vendor choices -- if CTOs don't believe in new companies driving technological innovation, who will? A smart bet on an innovative company with a solid management team and real staying power often means that you will get amazing service and support for the rest of your career. Sometimes you just have to go with a hunch.
Do you go with a hunch, or do you have certain techniques you use to research a vendor? Write to chad_dickerson@infoworld.com. Chad Dickerson is CTO of InfoWorld.
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