Over the past year or so, checking out headlines on tech startups often felt more like reading movie scripts than following the news. Theranos founder Elizabeth Holmes starting her prison sentence and the fall of the FTX empire and its founder Sam Bankman-Fried are only two examples of tech startups that inspired the imagination and then lost the trust of their audiences.
Whenever these types of stories make headlines, they hurt other startups, too. Potential investors could be forgiven for thinking that tech startups and their founders can’t be trusted and therefore be more cautious about committing to a company. So, how can startups in the sector regain investors; confidence and build long-term relationships in 2024?
How Trust in Tech Companies Has Eroded
Now, you’d be right in pointing out that the examples above are both taken from the U.S. And it is true that there have been far fewer negative headlines made by British startups. While that is good news, it doesn’t change the overall issue that trust in tech companies is eroding.
Just take a look at Edelman’s 2022 survey. According to its findings, trust in the global technology sector has declined for the past decade. Nearly two-thirds of the survey respondents said they trusted the technology sector, but less than 30% said tech companies were doing well on societal impact. More than six out of ten doubted that the leaders of tech companies genuinely cared about the welfare of people and society.
Foreign-based tech companies fare worse because Brits don’t trust the governments of the countries where the companies are based. Reading these figures, you can see an overall picture emerge. Add to that those constant negative headlines, both about rogue founders and economic uncertainty, and it becomes easy to see why investors are becoming more careful.
How to Build Trust in Your Startup
Of course, venture capitalists, angel investors, and others assess potential investments on their merits rather than unrelated headlines. But neither of us is immune to the information we’re surrounded by.
That is why startup founders need to focus on building trust in the brand and the product they’re hoping to develop. Being transparent, delivering proof of product, and ensuring compliance are three of the main ways to build trust.
1. Being Transparent
It’s only natural that you want to show your company in the best light, whether you’re talking to potential customers or prospective investors. However, it’s even more important to stick to the facts.
Few startups have large cash reserves, especially in the very early stages of their development. Avoid making your reserves sound bigger than they are. Convincing customers to try your product or service takes time. Investors understand this, and some even offer to support your sales process. Don’t try and make your sales sound better than they are. The truth has a way of coming out eventually.
Be honest about the roadblocks your team is facing. No matter how amazing your business idea is, every founder needs specialist advice or support that they may not have anticipated from the beginning. Investors and advisors often bring more to the table than money. If you’re not open about the issues you’re facing, they can’t offer help, and your startup misses out.
2. Delivering Proof of Product
When you’re going through your initial funding rounds, it’s common to sell an idea rather than a finished product. For investors, this is perhaps the riskiest period, as they’re putting their money behind a complete unknown. Because of the high level of risk at this stage, it might also be harder to convince investors that your idea is worth backing.
Things tend to become easier once you can show a product or even a minimum viable product (MVP). Again, be honest! The recent Netflix documentary ‘Bitconned’ delivers a frankly outrageous example of here young founders convincing a Korean investor that their product is working. I won’t put any more spoilers, but let’s just say that they go even further.
Still, overpromising or falsifying results will eventually come back to haunt you. A functioning MVP, on the other hand, allows you to approach prospective customers, get real people to use your product, and start building that customer base.
3. Ensuring Compliance
Many industries are subject to local and governmental regulations. In this context, data protection and privacy are two of the biggest concerns for tech startups.
Being compliant with those regulations and being able to demonstrate that compliance is essential to building trust between your startup and its audiences. How can you ensure compliance? First, design your product or service to be compliant from the beginning. Second, secure third-party endorsements where appropriate. Third, highlight those certifications or endorsements on your website with relevant registration numbers.
The Role of Financial Information in Building Trust
If you’ve been following our blog for a while, you know that I’m a big advocate of encouraging startup owners to learn more about their company’s financial situation. Understanding your finances is critical to making sound business decisions.
While most of this information is confidential, you will likely share some of the basics with potential investors. Projected as well as current turnover, projected sales, and potential return on investment are a few of the numbers that prospective investors may want to see.
Once again, stick to the truth. You may think that your current sales are not worth talking about. But if you’re a startup in its first year, any sales are a positive sign that will help convince investors to back you. Be realistic about future sales and the factors that will influence them.
Realistic goals that you achieve and exceed are better than unrealistic goals that leave you feeling like you’re failing at what you do. And if you do miss your goals, take the time to analyse what has gone wrong. Talk to your team and be upfront with investors about the difficulties you’re facing and the support you may need. This is how you build trust for years to come.
Final Thoughts
UK startups may not have had the bad press that U.S. startups had over the past few years, but they’re still affected by some of the issues that have eroded trust in the tech sector as a whole. By being transparent, delivering proof of product as soon as you can, and being compliant with local and national regulations, your startup can defy the overall trend and build trust with investors, customers, and other stakeholders.
Want to know more about developing your tech startup and building trust in your product, even if you’re at the idea stage? Or perhaps you need advice on your financial situation? We’re happy to help, just drop us a line.