Cyber Attacks & Supply Chain Disruptions: Startup’s Worst Enemy?

According to The Perfect Storm: Why Now?

Ernst & Young reported that 72% of surveyed companies across several industries were negatively impacted by the pandemic, with many issues stemming from supply chain disruptions. As lockdowns took over the world for several months in 2020, and with lasting effects through the years, companies struggled to source their products and continue operating.

While supply chains recovered, geopolitical tensions like the Russia-Ukraine conflict struck industries once again, causing gas shortages in Europe and the scarcity of many components sourced from the region. Startups got the brunt of these issues, especially as many count on limited resources to secure their supply chain or outsource while the situation stabilized.

As if that weren’t enough, ransomware payouts rose to $1.1 billion in 2023, signaling a new wave of cyberattacks that is leaking into 2024. While this spike is shocking, it was somewhat expected: hackers caught on to emerging technologies like AI to make their attacks more sophisticated, fast and precise.

These evolving threats are cause for concern for companies, but even more so for startups who seek to scale fast so they don’t lose momentum — such disruptions can cripple their efforts altogether.

Real-World Threats: A Startup’s Nightmare

The supply chain involves a meticulous process that requires every moving part to be in synchrony. Otherwise, a snowball effect could ensue in many industries where startups thrive, such as tech. An example of this is the semiconductor crisis that started in 2020 and is slowly improving. Because of supply chain issues caused by the pandemic and a dramatic rise in electronics demand during the lockdown, the semiconductor industry had no material or workforce to meet market needs. Today, some tech companies are still feeling the effects and prices are just stabilizing.

On top of this chip shortage, malicious actors are also targeting suppliers and stealing client data. One of the latest examples is Nexperia, a Dutch semiconductor company attacked by a ransomware group in April 2024. The hackers reported they stole a terabyte of information, including files from clients like Apple and IBM. This high-profile case sounded the alarms for chip makers to improve their cybersecurity as they battled to bounce back from years-long scarcity.

Startups in regions affected by geopolitical tensions, such as Europe and the Middle East, might also face the hardships of food scarcity and deepened supply chain issues. These unprecedented circumstances have hard-hitting effects on national economies, making it even harder for startups to succeed. In fact, cyber threats could add to these challenges, as the food and agriculture sectors aren’t spared from the rising ransomware attacks.

One final risk that can exacerbate other real-world issues is cybersecurity incidents in logistics companies. A simple denial of service or ransomware attack that encrypts systems could be enough to create massive supply chain disruptions. Radiant Logistics experienced it in March 2024, when their Canadian services suffered a denial of service, leading them to halt operations in that country and experience service delays.

While the impact on Radiant was financially small, according to the company, unprepared logistics and transportation companies, or even smaller startups, could have a different fate if their risk management strategy wasn’t as resilient.

From Panic to Plan: What Startups Can Do

Foreseeing potential industry risks and planning to minimize them is vital for today’s startups. This is the crux of risk management, which typically involves companies undergoing risk identification, analysis, evaluation, tracking, and treatment to become more resilient in the face of threats.

Stronger Supplier Practices

When it comes to supply chain risk management, diversifying and building buffer inventory. Don’t put all your eggs in one basket — if something were to happen to one supplier, your operations would suffer. Instead, source your materials from multiple places so you have a contingency plan if one of them faces hardships. Likewise, while just-in-time is ideal for lean strategies, it’s simply not sustainable in times of supply chain strife. In this case, it’s best to have buffer inventory in case a supplier runs short or late due to disruptions or scarcity.

Creating clear communication channels and being open with your suppliers will reinforce your relationship and make for better business. The more you understand each other’s needs, the better the workflow will be.

Cybersecurity Must-Haves

You can’t leave cybersecurity behind as you tackle risk management strategies around your supply chain. This doesn’t mean you have to be an expert on the matter overnight, but rather, seek out the right people to point you in the right direction and help you enforce healthy cybersecurity practices.

This means hiring IT staff or outsourcing this service, provided it includes standard measures like multi-factor authentication (MFA), regular backups, endpoint security, and employee cyber awareness training.

Insurance Safety Net

When all else fails, startups can still fall back on Business Interruption (BI) insurance. This coverage compensates financial losses when business operations come to a halt or aren’t at full capacity due to unforeseen events, such as cyber attacks or supply chain disruptions. Insurers know bills don’t stop coming for startups despite their best efforts to avoid risks — BI insurance has your back.

Discussing this coverage in your insurance package is especially important when you’re aiming for rapid growth and scalability, which is what startups are made for.

Knowing industry risks and preparing for them are signs of a committed startup that shoots for the stars while still having a backup plan. Cyber attacks have affected even the most prepared and secure startups, and supply chain issues are part of the external risks companies might suddenly face in such a volatile world. Being ready with risk identification and mitigation and discussing your needs with insurance brokers can be the best cushions to keep your business as safe as possible.