LEVICK Risk and Business Strategy | October 20th, 2017

Risky Business: The Saga of a Startup

Startups are more exposed to risk than traditional companies. Not only are startups featured heavily in tech-sector news coverage, but stories of a culture of discrimination and sexual harassment in Silicon Valley are currently under increased scrutiny by national news outlets as well as the general public.

LEVICK™’s Business Risk & Strategy practice has produced models of online responses to adverse events affecting startups and legacy companies. We examined mentions of adverse effects affecting both startups and legacy companies – like recalls and lawsuits – announced by companies at similar times to compare how similar crises can affect the two types of companies differently.

Our analysis showed that the consequences of a startup not taking control of messaging can be dire. In such competitive sectors, startups have little margin for error, as young brands with little equity are more easily defined by a crisis than more established legacy brands.

Observation: The “crisis period” for startups lasts approximately one week before mentions level off – traditional corporate issues often last less than 48 hours. Not only do tech-focused news sites frequently discuss startups, mainstream outlets in the Finance & Investment community also regularly report on startups and potential problems for investors.

Takeaway: It is crucial for startups to take control of the narrative early to ensure the story is reported accurately and fairly.

The following graph depicts mentions of two different product recalls announced at similar times – one by a startup and one by a legacy company – starting from the day the recall was announced.

Observation: On average, 97% of mentions of startup crises occur in social media, while only 75% of mentions of crisis for legacy brands occur in social media (a more standard proportion in today™’s digital landscape). Media coverage of a startup typically draws larger, more engaged audiences, who are comfortable engaging in online conversations and debates and may even receive most of their news updates on social media sites first. Early adopters of startup products often have high expectations, which can translate into vocal disappointment on social media.

Takeaway: Startups must ensure they are tailoring their messaging strategy to reach audiences on social media.

As startups are particularly vulnerable to these adverse events, it is crucial for emerging companies to plan for the inevitable. A product recall, case of discrimination, or sexual harassment allegation is more likely to impede customer growth, future funding, and potential partnerships at a startup. Preparing a crisis communications plan based on a thorough assessment of risk will ensure your startup is as insulated as possible from any criticism from the media and the public.