David Cummings on Startups

Big Cos Don’t Always Need a ROI

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David Cummings

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Recently I was talking to a hot startup in town that had completed a project with a Fortune 1000 company last month. After inquiring about the economics of the deal, goals, and outcomes it became readily apparent that there was no return on investment (ROI). Casually, I asked if the customer is going to continue with the next round of the project, which is almost the same as the first. The answer: yes, of course, they are going to continue working with us.

It seems strange that the big co is going to move forward when the results show they’ll lose more money. The takeaway is that for certain leading edge technologies, a ROI isn’t critical if it enables the big co to learn about new tools and markets. At certain early points in the product adoption lifecycle, companies will spend money simply to experiment.

Comments

3 responses to “Big Cos Don’t Always Need a ROI”

  1. Raghu Kakarala Avatar
    Raghu Kakarala

    The ROI is just as much to avert the Risk Of Ignoring a new trend/technology as it is about a Return On Investment. Or taken another way, for a large company to focus on traditional ROI for tiny expenditures is pointless, even if they yield a high percentage ROI the total dollars earned dont amount to much bottom line wise. But by having a diverse portfolio of small experiments to test on new things, the portfolio will return insights and areas to further invest in. The total loss or profit will be negligible but over time will likely yield a fantastic new opportunity.

    Reply
    1. David Cummings Avatar
      David Cummings

      Thanks Raghu. Great point that ROI can mean Risk of Ignoring a new trend/technology.

      Reply
  2. Kevin Chu Avatar
    Kevin Chu

    Those “new tools and markets” can eventually lead to an increase in ROI down the road too.

    Reply

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