Growth

The Growth Strategy Most Founders Overlook

January 14, 2020

By Team Laika

It’s easy to fall into the trap of thinking of compliance as a checklist item instead of a growth strategy. After all, compliance is complicated, costly, and seemingly a minor concern in the race to prove product/market fit, scale, and meet VC expectations. There’s just so much more to prioritize.

What many founders don’t realize is just how important compliance is in growing a startup. By prioritizing compliance and security, you’re positioning your startup to close the bigger deals you need to move upmarket. What’s more, compliance is a powerful marketing message that helps startups stand out from the competition as well as an important safeguard against company-killing events.

Still unconvinced? Here’s a closer look at how compliance helps startups grow.

Compliance Unblocks Sales

Chances are your startup will need to move up-market to succeed. This means transitioning sales to close bigger deals with enterprise companies. Too often, though, startups hit a roadblock as they start sales conversations with this new breed of customer. A lack of data security and privacy leaves them woefully underprepared to meet enterprise needs.

Large companies want to work with innovative startups. Nike, Bayer, Microsoft, BMW, Pepsi, and Johnson & Johnson, for example, all invest in partnership, mentorship, or incubator programs for startups. Adidas recently partnered with Carbon, a digital 3D-manufacturing startup, to create a new 3D-printing technique for its new product line, Futurecraft 4D.

In 2015, Coca-Cola partnered with Wonolo, an on-demand staffing platform, to find a solution for the corporation’s staffing woes. The partnership cut Coca-Cola costs by 75% per outlet and boosted Wonolo’s funding round by $5.7 million, according to StreetFight.

“Partnerships are attractive to both parties because startups bring innovation, and corporations bring scale.”

Ritam Ganhi, founder and director of Studio Graphene and former consultant for Accenture and Bank of America Merrill Lynch.

For example, say your startup decides it’s ready to move beyond selling to SMB customers. As you initiate sales conversations with enterprise companies, a pattern emerges. The enterprise loves your product and is keen to work with you, but they can’t do business with you until you fill out their 100-question security assessment. And, in order to fill that out, you need to have a compliance program in place.

Founders in healthcare, finance, and other regulated industries tend to anticipate compliance challenges early on, as that’s a clear barrier of entry to working within those fields. But if you’re outside of regulated industries, it’s easy to miss the need for compliance until it’s too late.

This reactive approach to compliance not only blocks enterprise sales, it sends teams scrambling to find a solution. Unfortunately, compliance takes time. It’s not something you can jump on last-minute, nor can you expect a promising enterprise customer to wait until you’re finished. With proper planning and a compliance platform like Laika to guide you through the process, founders can complete an audit in three or four weeks. But on your own, pressured by standstill sales and unsure of how to proceed, the process can take up to 18 months at the extreme.

Procurement cycles tend to be long at large companies — 7+ months, depending on product and industry. By investing in compliance before starting conversations with enterprise prospects you not only position your startup to meet enterprise expectations, you empower your sales team to do what they do best. The faster you can get through security, the more you can focus on selling.

Compliance and Security Give Your Startup a Competitive Advantage

You can use compliance as a selling point to help your startup stand out from the competition. By having a compliance program in place, you’re telling prospects that not only do you have all of the innovative products/services and the agility of your competitors, but you also ensure their data is handled in accordance with regulatory requirements.

Startups can further demonstrate their commitment by pursuing a stage-appropriate security program. This isn’t just important for sales conversations with enterprise prospects. With data breaches and privacy concerns dominating headlines on a regular basis, consumers are generally more aware of the need for strong security protocols and expect a higher level of internal controls. Quality security processes signal that your startup is more established, credible, and attuned to customer needs.

It isn’t easy for consumers or businesses to evaluate how secure or private their vendors’ practices are. A compliance attestation from third-party CPAs, however, makes it easy to build trust at a glance. Your prospects can go to your startup’s website, see the AICPA-approved logos, and immediately know that your company is equipped to protect their information. Equipped with an auditor’s report, you can use that information to tell a more compelling story about how third-party experts stand by your company’s security practices.

Intercom uses compliance as a B2B marketing strategy on its website.
Intercom dedicates an entire webpage to showing off the company’s compliance reports and other measures taken to protect its customers’ information.

Compliance Protects Your Startup’s Finances and Reputation

And what happens if something goes wrong? Say, a middle- or upper-level manager makes a mistake and triggers a lawsuit or your company suffers a data breach, privacy violation, or business ethics scandal? These things aren’t pleasant to think about, but they happen, and they can kill your company.

Data breaches happen, and they can halt startup growth in its tracks.

The Verizon Data Breach Investigations Report (see image right) analyzed 41,686 security-compromising events that occurred this year alone. 2,013 of those were confirmed data breaches where data was actually obtained by an unauthorized party and not just exposed. They also found that:

  • 71% of those attacks were financially motivated.
  • 56% lasted months before discovery.
  • And 69% came from external attackers.

In 2016, human resources startup, Zenefits, learned first-hand the perils of growing quickly without proper ethical and sustainable compliance standards in place. The promising startup drew $1 million in revenue in its first year, and attracted interest from top venture capitalists, raising $500 million at a $4 billion valuation the year before its CEO stepped down amid scandal, according to The New York Times. Accused of cheating state online broker license courses and other scandals, Zenefits paid $11 million to the state and $450,000 to the SEC, and the company’s focus on growth pivoted to survival.

The startup Timehop fell victim to a breach in 2018 when an unknown attacker used a Timehop employee’s credentials to get access to over 21 million user records. The attack compromised users’ names, email addresses, birth dates, and phone numbers.

Compliance protects your startup against devastating financial and reputation losses. It ensures your company is built on solid processes that remain strong and secure as your team grows, your product becomes more complex, and you take on bigger clients. Without it, you put yourself, your startup, and your customers at risk of losing it all.

The Top-Line Cost of Ignoring Compliance

Strong compliance and security provide obvious risk mitigation benefits. For example, a well-designed process for writing, testing, and shipping high-quality code reduces the likelihood of introducing errors that impact your startup’s revenue. The benefits are so obvious, in fact, that early-stage teams often frame their commitment to compliance and security purely through a bottom-line calculus around risks. That’s a mistake. The biggest benefit of compliance comes from its impact on your top line, particularly on your ability to move up-market.

Enterprise customers take on risks when deciding to work with startups, especially startups that don’t appreciate the size and scope of security issues for larger companies. To mitigate some of that risk, they build in security reviews and contract negotiations that often last months or longer. They hone in on compliance and security questions throughout the buying process. If you’re unprepared, you stand the risk of having to agree to terms that aren’t ideal for your startup or losing the opportunity entirely.

Corporate buyers know when founders misrepresent (deliberately or inadvertently) their security, processes, and earned certifications; they’ve seen it all before. Such interactions not only tarnish your brand’s reputation, they cancel your chances of earning enterprise trust and expanding your top line. Ignore compliance at your own risk.