Risk & Mitigation Strategies for engaging with Start-ups
Start-ups offer enterprises greater agility in innovation across the board, providing a marketable solution for incorporating readily within use-cases. With close to 46% of corporates experiencing significant impact from collaborating with start-ups, new opportunities can be explored across innovative areas. Start-ups in growth-related industries, such as deep-tech, AI, machine learning, and NLP, also offer significantly greater investment opportunities that can be leveraged for business success.
While the benefits of working with start-ups is unmatched to other avenues, there are several risks involved in collaborating with them as well. The high failure-rate within start-ups, coupled with unproven business models and lack of market reach, can lead to unfulfilled potential within collaborations. Companies may feel disconnected with the start-up’s activities, while not seeing benefits in the shorter term.
That is why it is vital for companies to understand the risks associated with collaborating with start-ups prior to engaging with them. To mitigate the risks associated with start-up collaboration, it is important to determine the stage in which the start-up is currently in.
I. Early-stage start-ups – Early-stage start-ups are considered a riskier investment opportunity, primarily due to unproven business models, lack of scale, and raw workable products. These start-ups may also be seeking venture capital in building their product further and may not have a steady customer base.
II. Growth-stage start-ups – Several start-ups in the growth stage offer tremendous opportunity to enterprises that are seeking positive collaborations long term. They can also play a significant role in digital transformation-related activities, especially for enterprises that are in the growth stage as well.
III. Mature start-ups – These start-ups are generally categorized as low-risk collaborators, as they have formalized processes, venture capital, management teams, defined structures, and workflows, that can be seamlessly integrated with collaborating companies. Scaling up is also less complex, especially within new tech domains.
Let us review the top 10 risk factors when engaging with start-ups, and how best to mitigate these risks when collaborating.
1. Lack of structure and framework – Start-ups may lack governance and formalized processes within their organizational workflow, which can create long term complexities during collaboration. Multiple points of contact, fluctuating manpower, lack of flagging, etc. can become detrimental to the collaboration. Companies can mitigate this risk by creating a detailed and well-documented framework of engagement, with stage-wise checkpoints and benchmarks.
2. Skillset mismatch with start-up – There may be situations where due-diligence may not have provided enough insights to suggest a skills alignment for corporate requirements. Start-ups may not have the right resources available or the knowledgebase to successfully deliver on projects. Companies can leverage top networking platforms to find reliable start-ups that have a successful track-record in their industry.
3. Culture mismatch with start-up – A common reason behind the failure of collaborative relationships is related to culture mismatching. Start-ups may have adapted to a more agile business approach, with companies focusing on establishing robust internal policies and set guidelines. It is important to establish a clear onboarding protocol, prior to collaborating with start-ups, to adjust culture to best accommodate new project teams.
4. Lack of continuous innovation – Companies may not experience the benefits of continuous innovation, when working with some start-ups. Start-up collaborations can also produce limited results, which can cause strain in the partnership. Companies can broaden their innovation perspective, in terms of building start-up relationships and provide the right resources to sustain continuous innovation.
5. Risk of process compliance – Start-ups by nature are dynamic, which can create challenges in terms of process compliance and adherence to workflows. Companies can mitigate these risks by establishing clearer parameters in terms of regulatory guidelines, process workflows, and management protocols to ensure effective compliance.
6. Lack of vision within collaboration – Companies can diminish the potential of a start-up collaboration by reducing the scope and vision of their partnership. In fact, this is a key reason why less than 50% of start-ups are satisfied with sales opportunities and market access. The lack of vision in the collaboration can be overcome by having leadership involved early on and by not restricting innovation to only a few domains.
7. Potential risk of diminishing value – Several instances of collaborations with and acquisitions of start-ups have resulted in failure, primarily due to diminishing value. Start-ups may not be innovative enough to capture value 3-5 years ahead and might stifle progress within domains as well. This can be mitigated by enhancing the technology scouting process early on. By using verified networking gateway platforms, companies can engage with high-quality start-ups that are domain experts in their field.
8. Security risks with data-sharing – There could be cyber-security risks associated with collaborating with start-ups as vendors. The access to data could be compromised if the right IAM, encryption, and processes are not established within the collaboration dynamics. Enterprises can mitigate this risk by drafting security governance, data management, and compliance protocols to protect against hacking, crypto-jacking, ransomware, etc.
9. Lack of clarity in roles – Across several start-up collaborations, the level of satisfaction with the partner can decrease, due to a lack of clarity in objectives, goals, and roles. In fact, hard and lengthy decision-making and lack of mutual recognition are some of the main reasons why collaborations fail. Companies can mitigate this risk by continuously working with start-ups and supporting their projects through various stages closely. A clearer definition of roles can also streamline execution.
10. Lack of transparency – Having transparency within project relationships and collaborations is vital to driving long term business results. A lack of trust within the partnership can lead to complications in the future, with the formation of silos, bottlenecks, and delayed results. Companies can improve transparency and mitigate this risk, by creating open channels of communication and dedicated liaisons to engaging with the start-up.
vBridge Hub connecting start-ups to companies for collaboration
86% of start-ups expect the number of collaborations to rise over the next few years, with 55% of corporates believing that to be the case as well. vBridge Hub helps establish a robust connection between corporates and start-ups to structure the technology scouting process for best results.
vBridge Hub provides access to a highly curated list of technology innovators that are working on both sustaining and radical transformation projects for enterprises. The platform promotes seamless engagement with start-ups for new projects, collaborations, acquisitions, and partnerships.
Reach out to us today, and connect with our experts at - https://vbridgehub.com/contact-us/