Numbers don’t lie. Studies have proved that most startups usually fail within the very first five years. And the reason? Because they fail to assess risks and come up with practical ways to manage them. You see, starting a new business is exciting and at the same time terrifying. The startup economy is full of innovation, potential, and opportunity. However, at the same time, it’s also fraught with many high-stake risks.
If you are looking to start businesses or have a young one already, you’ll need more than faith to make it succeed. Expect to face several challenges, including technological, political, competitive, customer, and resource uncertainties. How you assess these risks and devise ways to address them will determine if you will be among the few businesses that succeed or the many that struggle to remain relevant.
Here are 7 ways to help your new business assess and manage risks
1. Keep your business simple
You are just starting out, right? Well, there’s no need to keep your business so complicated right now; as a startup, it’s safe to assume that your resources are scarce, not to mention your management bandwidth. If you are looking to offer many services or products, consider starting with one thing a time, and proceed to add more as your company grows.
2. Evaluate your product
When it comes to product evaluation, there are two risk factors you need to keep in mind. The first is always the product itself. Look around and see how many big competitors are offering a similar product. Is it easy to convince your target audience to consider you over them? How does your product solve customer’s problems? As you begin, go for the less risky niches and ensure your product offers a solution.
The second factor is your familiarity with your product. While there’s a chance you can succeed with a product you don’t know much about – if you will hire skilled personnel – it’s always good to go for something you are more familiar with. A good number of researches have shown that higher investment multiples tend to be statistically more likely if one invests in a product, they are very familiar with.
3. Look at your projected revenue
When assessing the risks of your business, never overlook your revenue or projected revenue. Why else do you think investors always ask startups to provide evidence of their revenue and their projected figures in the long-term?
Look at your monthly recurring revenue to have a more explicit analysis. Now, project how much returns you expect to have annually. These figures will help you come up with contingency plans should anything happen to minimize possible risks.
4. Analyze the market
Whether or not you are looking to offer a service or a product you are familiar with, there’s one question you should always keep in mind: how likely are people going to purchase it? Now, this is where market research comes in. Before you can even think about launching your business, conduct some thorough research on the market, taking into account your niche, competition, target audience, geographical location, and everything in between.
5. Take a closer look at your team
There are two ways businesses risk when it comes to hiring their employees. Firstly, many startups risk hiring wrong team members for the job. It goes without saying that part of your business’s success rests in their hands. Take your time to get the right talent for your business. And to keep your company secure, ensure your security operations center (SOC) is well monitored and assessed to prevent breaches.
Second is the risk of losing talent! If you are lucky to get hardworking and smart employees with a good level of knowledge about your business model, you should cultivate and provide sufficient training to them to overcome any skill gap they may have. If possible, offer adequate compensation, award them for overtime, and have a plan for annual bonuses.
6. Evaluate your legal risk
Legal risk is broad and comprises things like compliance, intellectual property, and work safety. When it comes to compliance, you’ll certainly not want to be on the wrong side with the government to avoid prosecution or fines that may cripple your business finances. Even if it means seeking the services of a professional who’s familiar with matters of compliance, ensure you get your licenses, tax compliance, and employment laws right from the get-go.
Additionally, when it comes to intellectual property, the trademark registration and patenting process is decidedly complicated, companies like HeerLaw specialize in this service to help make it easier for you.
If you are in the healthcare sector, you can get a consolidated approach to various industrial, state, and federal regulations that govern your approach with HITRUST CSF.
7. Keep your expenditures low
As a young business, you’ll want to keep your overall expenditures low where possible. Save money on every opportunity you get. If, for instance, you are looking to buy lots of office furniture, seek discounts and deals from different vendors or buy used furniture that’s in good shape. Also, before your business grows, don’t lock yourself into long-term agreements.
Final words – a word for the wise
As an entrepreneur, you can’t start your business blindly, failing to assess and plan for effective ways to address the risks that your startup could face. Start by identifying uncertainties and proactively manage them through the said strategies. The success of your business depends on it!