By Sagar Kapadia
Running a business is fundamentally a challenge in risk management. The risks are caused by uncertainty over a number of business-related factors, such as what the future preferences of customers will be, whether the firm’s technology will be successful, how the economy will perform overall, and what the firm’s competitors will do. Given that every startup company faces some level of risk, it is critical for the management to be aware of these risks and to prioritize them effectively.
The business owner should evolve as the enterprise grows and be aware of the hazards it faces. Entrepreneurs should decide which risks need to be managed for their unique setting rather than trying to reduce these risks to zero. The risks that most startups face can be assessed and managed using the general approach provided in this article.
An entrepreneur must recognize the numerous risks that the business faces and evaluate their significance in light of the circumstances of his or her own scenario. In order to create a successful start-up, a company must take calculated risks as well as those that are inescapable or required. The magnitude and type of risk that can be accepted depends on the unique circumstances. In this article, we detail the risks that the majority of organizations encounter and provide some solutions for minimizing them.
The chance of selecting inappropriate team members and the potential loss of valuable team members are major risks in every startup as far as the team is concerned. To handle them, nevertheless, effective mitigating measures are in place.
Building The Core Team
In the early phases, a startup’s viability depends heavily on the diligence and skills of the core team. Unskilled co-founders, disputes over finances or the direction of the company, and the departure of a bright founder are all risks. Instead of rushing into an impromptu agreement with anyone you met on the internet or at a Meetup, picking a co-founder who you really know well can help to reduce these dangers. Make sure to select co-founders with abilities that are complementary to your own to lessen the likelihood of knowledge gaps. Consider creating a written founders’ agreement to reduce the likelihood of disagreements on ownership and accountability for particular business-related features. Once you have a talented group, link the accomplishments of each team member to the overall success of your company.
Employees will play a part in the growth of your business. Slow hiring and swift firing will reduce the chance of dealing with the wrong people. To obtain a second or even third perspective on the hiring choice, it is helpful to conduct numerous interviews with founding team members. As part of your hiring process, give practice tasks to applicants; those who are hired should then be given a trial phase as an additional way to assess their suitability. Employees that consistently behave negatively, critically, or abusively present a risk to your company and should be fired as soon as feasible. Even if there is a mismatch between a smart and diligent employee’s particular abilities and your demands, you should keep them on board since you can train them to fill the gap. Offer sufficient financial rewards to keep essential staff in place and award bonuses to retain them.
The long-term stability and survival of the firm depend on the effective management of typical legal risks that companies confront such as compliances, errors, Intellectual property risks, work safety, and labour laws. Businesses that violate government regulations risk fines and perhaps legal action. Companies must make sure they adhere to all rules and regulations that have an impact on their operations, such as corporate governance, employment legislation, and company licenses, in order to avoid this issue. Compulsory insurance may be necessary for some areas of your firm, depending on the industry and jurisdiction you have selected.
Businesses incur the danger of suffering losses and legal repercussions as a result of ineffective or flawed internal procedures, fraud, human-mistake in transaction processing, etc. By creating standard operating procedures and including control steps at crucial stages of the process workflow, these risks can be reduced. Businesses should also purchase professional liability insurance to safeguard them against lawsuits brought by unhappy clients who accuse them of doing a subpar job or acting negligently.
Consider making an investment in copyrights, trademarks, and patents to deter rivals from stealing your innovation. Entrepreneurs should create emergency plans for situations like fires and explosions to safeguard their staff and stay in compliance with health and safety regulations.
Cash flow problems frequently spell the end for any organization. A company’s managers must make sure that this situation never arises. There are numerous financial dangers that could cause you to experience liquidity issues such as credit risk, exchange rate risk, interest rate risk, asset valuation risk, and economic and external factor risks. Entrepreneurs need to be aware of those that could impact their business.
Having enough funds invested in investments is the best defence against being short of money. Entrepreneurs frequently struggle to raise capital when they most need it. The best strategy is by accepting funding when it becomes available and saving it for a rainy day, you can reduce your financial risk and offer yourself a lengthy runway.
By creating a responsible budgeting strategy, disciplined collection policy, and sensible cash management strategy, you can reduce your other financial risks.
It can be extremely challenging for entrepreneurs to start and expand a company in nations with unstable political systems, weakened legal systems, high rates of corruption, oppressive bureaucracies, or excessive taxes. In such an environment, business owners wind up spending the majority of their efforts managing ineffective tasks that don’t actually add value to their company.
Founders should think about establishing their company in a business-friendly environment that provides good governance, a law and order, IP protection, zero corruption, and cheap taxes to reduce the likelihood of succumbing to such bureaucracy.
There will always be risks in business. Entrepreneurs must develop the ability to accept inescapable risks and manageable risks in order to succeed. A strong core workforce, a business-friendly government, a variety of marketing avenues, and smart financial management are the finest risk-reduction strategies.
(Sagar Kapadia is the Vice President of Forensics, Research & Due Diligence at Marwadi Financial Services. Views expressed are the author’s own.)