Pitfalls to avoid startups

5 Pitfalls to avoid when partnering with startups

Leaders in enterprise IT are forming partnerships with startups to increase their companies’ ability to innovate and respond quickly to market changes. Working in tandem with new ventures can jumpstart the innovation process, give CIOs access to scarce talent in cutting-edge fields, and complete digital transformation plans. However, it is not enough for IT managers to recognize the value of the competitive advantage that startups can provide; they must also secure the safety and security of their businesses. In the absence of a due diligence process, an enterprise could face third-party risks.

Let’s look at some of the common traps IT leaders fall to while partnering with startups and how to steer clear of them.

Using technological criteria alone to choose startups

A good multistage due diligence process involving the startup’s founders, customers,
platform, among others, is a must while shortlisting a startup. There may be instances of intellectual property (IP) infringement or pending claims against a startup, which might also affect an enterprise because it employs the same IP.

Disregarding the possibility of volatility in startup partnerships

It’s also possible for a startup to increase the portfolio’s volatility by bringing in new partners. For instance, a new business might run successfully for the first couple of years before finally succumbing to the recession. CIOs can protect themselves from these types of threats by making the most of their company’s reputation in the market.

Lack of appreciation for startup employees

Startups frequently rely on a small number of high achievers, who may excel in either sales or technology. There’s a talent risk for the company if these key people quit. The greatest strategy is establishing an open line of communication with the startup and maintaining complete honesty throughout.

Assuming cybersecurity

Startups are becoming top targets for organized crime as they are perceived as lacking robust defenses against hackers. Only 27% of startups have a dedicated security team or person, according to Vanta’s State of Startup Security 2022 report. 75% of respondents believed they should enhance their security measures. At the end of the day, it is all about striking a balance between risk and control, says Rabra.

Neglecting cultural difficulties

Enterprises have inflated or unreasonable expectations of startups when it comes to the degree of customization that can be included into a given project. When compared to a startup, a major corporation moves at its own pace. The clarity of the corporate’s dos and don’ts offers the startup more strength. Before outsourcing to a startup, businesses should have a firm grasp on what it is they hope to achieve and how the company will help them achieve their goals.

Source: CIO