The Investment Startups Can’t Afford to Miss

Dezenhall Resources / August 29, 2023
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Startups are undeniably the driving force behind the American economy’s growth and dynamism. They’ve fueled job creation, fostered innovation, attracted international capital, imbued a culture of entrepreneurship that promises continued economic resilience and adaptability in the future, and introduced products and services into our lives we can’t imagine living without.

Startups chart a distinct course from established businesses. They rightly allocate resources primarily to product development and people, which is crucial for attracting investor interest. The next priority is often safeguarding their legal interests, including business structure, intellectual property, and regulatory compliance. Both are intuitive and essential first steps for a company planning to upend or transform an industry. However, there is a critical blind spot for many startups that can pose a significant risk to their future success – especially if their sights are set on industry or regulatory disruption – not properly understanding, investing in, and deploying strategic communications and public affairs work.

In the dynamic startup ecosystem, founders and investors often navigate a maze of decisions and personnel. One key factor that must be considered when running through the risk management protocols is the proper investment in strategic communications. This can come in many forms, and while it might not immediately contribute to the profit column, if not done properly, it can set a business on the wrong path with employees, regulators, customers, and numerous other stakeholders.

I understand how rich it sounds for a communications and public affairs professional to advocate for a fulsome investment in his discipline. However, businesses routinely call our firm after being sued by a government agency, called before a Congressional hearing, or attacked by an adversarial interest group. Unfortunately, when you have reached that point, it is much more expensive to dig yourself out of that reputational hole than to develop an early foundation upon which you can build.

While investment in strategic communications is traditionally seen as a later-stage endeavor for these businesses, there is a solid argument to be made that investments in these disciplines provide better returns when done earlier in the business trajectory for a few reasons:

  1. Anticipating the Unseen: Strategic communications and public affairs advisors are akin to navigational experts. Their insights can help startups “see around corners,” allowing them to anticipate market changes, regulatory shifts, and public sentiment swings. Being forewarned enables startups to be forearmed. Additionally, these businesses function in an insulated ecosystem; external advisors can help companies break out of the jargon-filled language many entrepreneurs and developers tend to use (tech-speak being one example).  

  2. Beyond Profit-Centers: The conventional approach dictates that successful investments should be measured in dollars and cents. However, reputation capital is invaluable in an era of rapid global information flow and heightened stakeholder scrutiny. Reputation management is an intangible asset that can either buoy a startup or cause its untimely sinking. While they might not reflect immediate returns on balance sheets, their long-term value is undeniable. Just as we invest in insurance, we are not hoping for an accident but to be covered if one happens. Similarly, effective communication strategies can be a safety net against unforeseen challenges and attacks.

  3. Building Authentic Relationships: Effective public affairs isn’t just about managing bureaucratic hurdles. It’s about nurturing genuine relationships with stakeholders, regulators, and the community. Startups that invest early in this space find themselves better integrated into their ecosystems, fostering trust and easing operational friction, allowing for a longer runway for growth and fewer barriers to entry.

  4. Crafting a Resonant Narrative: Every startup has a story to tell. How, when, and to whom this story is conveyed can dictate its reception in the market. A thoughtful strategic communications approach and plan can curate a startup’s narrative, making it resonate with its core audience, whether customers, investors, or regulators. Done correctly, the return on investment here can factor into the next funding round or IPO roadshow.

  5. Crisis Management: A minor slip can be a full-blown crisis overnight in today’s hyper-connected world. Contrary to many cliches, a crisis is not an opportunity and rarely occurs through happenstance. There are motivated adversaries that each company faces that want to extend the afterlife of a business crisis. Having a robust communication strategy and the right external advisors to guide you through whatever issue you face, can ensure that startups can adeptly navigate these waters, managing perceptions and mitigating reputational damage. Doing so reduces the risk of a government or media investigation into the issue, prolonging the crisis and forcing the expenditure of time and resources that should otherwise be spent on product development.

  6. Influencing Policy Landscape: The regulatory landscape can be ambiguous for startups, especially those in emerging industries. Instead of passively navigating this terrain, startups with proper public affairs investments can proactively engage with policymakers, potentially shaping regulations favorable to their growth.

When you create a business, there are massive barriers to entry mostly driven by market forces. Still, companies must contend with the larger hurdles that your better-financed and organized competition will build to shut you out. This is particularly true when you are looking to disrupt an industry or innovate in an already heavily regulated space – the government would like to have their say as well – either driven by their interests or your competitors’ interests.

Facebook (now Meta) is a prime example. Following the 2016 election, Mark Zuckerberg faced numerous days of Congressional grilling in both chambers over Russia’s alleged manipulation of the platform to spread disinformation during the 2016 presidential campaign and concerns over user privacy breaches and fake news. These hearings were essentially an apology tour while he was hit by members from both sides of the aisle armed with talking points and information from certain “interested parties.”  

While the turmoil that hit Facebook following the 2016 election might have been inevitable, having not made the proper investment in government relations and strategic communications, Facebook opened themselves up to attacks by those in Washington that have been heavily lobbied and tactfully communicated to by their advertisement competitors – large telecommunications giants.

Facebook learned its lesson in 2017 when it was reported that Facebook had significantly increased its lobbying expenditures to $11.5 million, nearly double what it had spent two years prior.

Every business does its best to create a risk management playbook and has a line in its balance sheet for it. The playbook typically includes financial planning and compliance, but communications are too frequently absent. I understand why this is; a company’s reputation is less tangible as a piece of software or a medical treatment.

I can show you sentiment charts and give you all the case studies that I can fit into a slide deck, and you still might not be ready to make the necessary investment to limit your future risk. One thing I can tell you is the billing rates of the consortium of consultants rack up fast once you get a Congressional inquiry or are on the receiving end of a government agency investigation. Without the proper reputational baseline and communications infrastructure, you might find yourself on the wrong end of the trending pages – even if you were the one who founded a social media website.

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