5 Things to Research Before Working With a Startup You've poured your heart and soul into building your company. Make sure any newcomer you bring into your business has done the same -- and has the processes in place to protect your investments.
By James Parsons Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
When you're running a business, it's easy to get in over your head. Taking something from concept through execution to successful brand never sounds easy, but there's always something you overlook at first glance. Even the most seasoned entrepreneurs work with others to cover their bases.
Niche startups and outsourcing exist precisely to fill business-needs gaps in specialized expertise. It's also why software as a service (SaaS) solutions are as popular as they are, and why there always will be new, agile startups hitting the field.
Working with a startup is very tempting. Smaller businesses are more likely to cater to your needs rather than offer you a one-size-fits-all option. Smaller shops can focus on customer service, with potentially less on their bottom line. These startups want to please initial clients, get good reviews and build a firm foundation for sustainable growth.
That said, there are some risks to working with a startup. Always take the time to do your research. You'll need reassurance of the company's quality of work and that the exciting, new startup you want to work with isn't going to disappear next week. Here are some key issues to consider before you sign any work agreement.
1. Company stability.
Startups come and go like the tides. It takes a practiced eye -- and some good risk-assessment skills -- to spot which ones will stick around. No matter how much you like the personalities or ideas at the table, you must ask yourself some uncomfortable questions. Do you trust the management team? Is the business likely to remain financially solvent?
To answer these questions, you might need to look into financial statements or company documentation. Most important, you need to feel confident in the company. If you don't trust its leaders to make the right decisions, don't rely on them. If you discovered the group only by chance and don't believe its marketing strategies will help the startup grow, you're right to be hesitant. Don't hop aboard with any company that seems as if it's one wrong move from starting a downward spiral.
Related: 4 Keys to a Stable Business
2. Chances of acquisition.
Many startups are created with almost the sole goal of getting large enough to be acquired for a significant sum of money. I've seen it before: A company works with a startup because the big-name player in the market doesn't meet specific requirements or isn't affordable. Then that big-name player acquires the startup, leaving the first company with no option but the one it already dismissed.
You need to be able to get out of that hole if you find yourself in it. What will happen if you start a contract with a startup and that company is purchased by a larger organization? Your contract should include a change-of-management clause to handle the contingencies.
Related: The End of the Startup Era: 5 Ways to Save Your Business From Acquisition
3. Security.
If the company you're working with processes any of your data or business-essential information, you need to make sure its IT system is secure. Of course, any business will say your data is safe. That's why you need to ask for third-party verification.
IT security is increasingly important, and it seems as if another massive breach occurs every month. Make sure your contract includes clauses that require the startup to meet certain security standards and holds the company liable for any breaches that impact your company.
4. Disaster recovery.
Startups typically operate on thin budgets and don't necessarily invest in the infrastructure necessary to protect their assets. Security threats are one thing, but natural disasters and other unforeseeable acts are their own category. Even a small fire in the wrong place can destroy a business.
Strive to ensure your chosen startup has a disaster-recovery protocol in place and tests it regularly. You'd be surprised how many companies don't verify that their years-old backups will work when needed most.
Related: Why Every Small Business Needs a Backup and Disaster Recovery Plan
5. Advancement.
Startups often bring value in terms of agility and innovation when they first hit the market. After all, a startup exists to bring a novel idea to market. But where does it go from there? An ideal business will continue to innovate and grow, while a bad startup will falter and fail if it isn't acquired early in its lifespan.
You might find it worthwhile to pick a "startup" that already has gone through a cycle or two of innovative advancement. You'll have real-world proof the company has the capacity to continue growing, rather than stagnating and eventually failing.
Related: 'Good Enough' Is Fine for Getting Started but It's Not a Worthy Goal
