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How can a startup get big retailers to trust them?

The challenge

Toronto company Rubikloud has developed a technology that helps very large retailers – companies making over half a billion dollars in annual revenue – understand their customers better. This is a "big data" problem: huge businesses like this have millions of customers, all interacting uniquely with the company, and it is a challenge to make sense of the massive amounts of data generated hourly.

In order to develop its technology, Rubikloud needed access to the data of the very customers it was courting. This is not a small "ask." Data is the lifeblood of all companies and managers are wary of trusting it to small, new companies. How could Rubikloud's co-founders earn their trust and get the data they needed?

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The background

Rubikloud was founded in early 2013 by Kerry Liu, Dan Theirl and Frank Thomas. Mr. Liu and Mr. Theirl already had experience in data, but they knew that they could provide deeper insights if they could analyze the enormous amounts of data about online, as well as offline, customer behavior. They convinced computational expert Mr. Thomas to join the company as co-founder and chief technology officer, and Rubikloud was born.

During the first nine months of operation, the company gained some traction with large retailers by helping them convert online visitors to paying customers. This success led to seed funding by angel investors, which enabled the founders to hire the data scientists they needed to develop increasingly sophisticated technology. Around the same time, the founders started to realize that their system could provide needed value in a very specific area: understanding the data associated with customer loyalty programs.

"The typical retailer with half a billion dollars in annual sales has millions of loyalty plan members," explains Mr. Liu. "While these loyalty customers are supported at the cash register, behind the scenes it's often a different story. Many of the systems were developed a dozen years ago and can't break customers into more than 100 groups. And retailers tend to target promotions only to the top 12 segments anyway: to people who are already buying their products. Many customers get left out."

Leveraging customer loyalty programs effectively involves multiple types of data – about customer preferences, customer buying behaviour, prices, products and messaging. Different customers like to interact with companies in different ways; for example, through Facebook, text messages, e-mail, and even through traditional flyers.

Mr. Liu says that the wide scope and huge volume of data make it the perfect problem for big data techniques and machine learning. Their technology can create an unlimited number of segments and make pricing, product and messaging recommendations.

However, to develop this technology, Rubikloud needed access to retailers' data. How could the founders convince these large, established firms to take a chance on them?

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The solution

The answer, in a nutshell, was to "de-risk" the proposition by showcasing the company's credibility and capabilities in three ways. The first is hiring strong people with experience in retail. "These people left great retail jobs to join a tech startup. That is a powerful signal of our credibility to our customers. It also gives us a rich understanding of what retailers want," states Mr. Liu.

Second, the Rubikloud co-founders are familiar with, and responsive to, the strategic issues facing their large retail customers. As Mr. Liu puts it, "We focus on the issues that keep CEOs up at night and are able to have candid conversations about what lies ahead. Data privacy and data security issues loom large in this industry. The rules vary throughout the world, and are changing, and it's important for us to be a thought leader in this area and provide sound solutions."

Third, it is essential for Rubikloud to be responsive at an operational level, and fix client problems quickly. "This means not sending just a client manager to meetings with clients," says Mr. Liu. "We also send top-tier engineers, which means that if the system needs a fix for the client, we can often do it in the hotel room that night."

The result

There is often a misconception in the startup world that the best technology will win in the B2B market. While you do need great technology, you also need to convince established companies to take a chance on a startup. Rubikloud's three-pronged solution was designed to do just that, and it seems to be working well.

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Some large retailers agreed to participate in a proof-of-concept phase, and they have all now signed on as clients. Over the last six months, Rubikloud's revenue has increased almost 500 per cent. They've finished a Series A financing round, bringing their outside investment to $10-million. This investment further enhances their credibility because it signals to potential customers that they have the financing needed to maintain their technological edge and grow their business.

Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto

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