Surprise! The Startups Are Back

IT purchasing has turned back up, but customers are now demanding that their investment pays off. We find six outfits that have mastered that mandate.

FORTUNE

By David Kirkpatrick

Any entrepreneur trying to sell tech products to business today confronts a jaded customer. CIOs were burned badly by the tech industry in the late 1990s, and they won’t let suppliers forget it. Back then big businesses bought just about any technology that promised to hold back the dot-coms. When the frenzy abated, they found themselves awash in expensive tech, much of which didn’t work as advertised. So business cut way back on tech spending in the past couple of years as it tried to digest what it already had.

Now the atmosphere has changed. Startups once again are eagerly eyeing the corporate tech budget as enterprise IT purchasing has begun to turn back up—both the Gartner and IDC research firms project that it will pick up further in 2004. Yet this is no mindless return to the tech boom. Stephen Minton, director of worldwide IT markets research for IDC, cautions that businesses are fed up with technologies that don’t play well together. With maintenance and labor making up 80% of most CIOs’ budgets, efficiency is what customers increasingly seek, says George Gilbert, a veteran security analyst now consulting in enterprise software. "They want to make the care and feeding of their systems cheaper," he says.

The new catch phrase for startups: It’s ROI or die. Customers now insist on seeing their investments pay off almost immediately. Some won’t even consider purchases that don’t show a return within six months. The following six startups demonstrate a mastery of this mandate. From Airespace, which helps companies go wireless quickly, to Out Systems, whose programs enable CIOs to immediately cut the cost of new software, they’re highly focused and pragmatic.

You can’t invest in any of these still-private companies yet, except by using their products. But their success suggests that the tight-fisted investors called CIOs are again blazing the way toward productivity gains that will benefit us all.

VMware

Airespace

Out Systems

Zilliant

24/7 Customer

PSS Systems

For the stories on these new startups:
http://www.fortune.com/fortune/techatwork/articles/0,15704,539030,00.html

Reporter Associate(s): Jenny Mero