You have probably heard that half of all-American startups fail within the first five years. However, the number is higher. According to a recent survey by Small Business Trends, approximately 62 percent of all startups make it past the fourth year. Every year, most businesses with employees close or go bankrupt. While some business owners’ close by choice, for example, to move on to something new or retire, others close their businesses or file bankruptcy due to unforeseen circumstances. Fortunately, you can avoid most of these disasters by heeding to risk management principles.
How to De-Risk Your New Business
Are you planning to start that business you have always dreamt about? Whether you are planning to start your business, or you have just recently started, being a business owner can be financially and personally rewarding. What’s more, you will be contributing to job creation and capital formation. However, while your business can generate great rewards, it also faces significant risks. Fortunately, identifying these risks early, and determining how to handle them can help in scaling a startup. Some of the common risks include:
Financial Risk
During your risk assessment, financial risk factors should be on top of your list. As a first-time entrepreneur, you are fortunate enough to have enough tools to help you get funding. Additionally, you have friends, family members, traditional VCs, and angel investors that can help you kick start your business. However, before you start your business, you need to have enough capital to start your business.
Investors will only agree to fund you if you have a viable backup plan in case you’re not able to raise enough capital for your business. Being able to articulate your growth plan and achieve all the milestones will boost the confidence of potential investors.
Product Risk
When assessing investment risks for your new business, product, or service-related risks should also be considered. You should ask yourself whether your product or service will take a strong base in the competitive market and whether the product is reliable for your target market.
If you cannot determine whether your service or product will help your target clients, then your business idea may not survive in the current competitive market. According to a recent Forbes report, the number one reason why businesses fail is that there’s no demand for their services or products in the market.
Legal Risks
Most of us hire lawyers to keep us out of trouble. But there are other specialists like cloud service providers (CSPs) that can help you identify risks, primarily if you work in an industry where you have to be compliant. You will need various compliance documentation, including HIPAA, PCI, ISO 27001, and SOC 2 among several others.
The list of potential problems with legal roots is endless: disputes due to poorly structured agreements, tax complications resulting from your state of incorporation or choice of the legal entity, lawsuits filed by competitors declaring illegal acquisition of trade secrets by your expert programmers. To mitigate legal risks, ensure that you learn more about the subject, retain attorneys, and hire professionals to protect your clients’ information.
Teamwork
Fixing the legal risk factor and protecting client information isn’t enough. You will also have to deliver on your promise to your customers to maintain the market value of your business. That’s why you will need a mentor, a personal board, confidante, and an exceptional team that can help you build a unique product or service to the market. You alone can’t conquer all potential risks. You need to surround yourself with a team that believes in your product to help you scale your startup.
Market Risk
After assessing the teamwork risk for your new business, your next step should be to analyze your market value. By knowing your customer’s needs and from where you will be acquiring your products, you will be able to analyze the competition in the market. Additionally, it’s essential that you research your competition and the various benefits they have. This will help you build on your strengths and beat them in the market.
Execution Risk
New entrepreneurs can sometimes become stalled in the business details that they lose sight of the company strategy. At other times, you may overlook important details that may cause significant problems. It is advisable to maintain a robust dichotomous approach of all details while maintaining a strong focus on business execution. This will help you build a successful business.
Your startup will face several obstacles. Some of the risks are controllable, and others can’t be. To succeed in your new venture, you will need sound counsel from professionals on how to mitigate risks. Remember also to create a risk management plan that contains all risk assessments and ways to mitigate risks.
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