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90% of new businesses fail. While there are a million reasons behind the failure of businesses, they can be summed up by one phrase- risk management. The thing is that risks are an inherent part of starting a business.
When starting out, you have to deal with the risks of gaining a market share, choosing a brand positioning strategy, and complying with the regulations. These risks do not end once your business gets a significant market share, and as your business grows, it will face even more risks. The best option would be to create a risk management plan to understand the right way to deal with long-term and short-term risks.
Here are a few insights for startup risk management:
Why Risk Management Is Essential
While some risks will maim your business, others might barely affect it. For instance, the risks of a cyber-attack can easily lead to the loss of key stakeholders, including customers, employees, and investors. A risk management plan helps you to choose a great strategy to help reduce the risks that your business faces. Also, it enables you to identify the roles of your entire workforce in dealing with risks.
By building a risk-based culture, your business will manage to deal with these threats holistically. Instead of throwing resources to the different business risks without any plan, a risk management plan also helps you to plan limited resources in a way that exposes your business to the least amount of risks. Lastly, a great plan can give you a competitive advantage when looking to work with risk-averse investors.
Start With Risk Identification
The first step towards building a strong risk management plan is to identify company killers, both in the short and long term. The risks can range from internal to external risks. Internal risks are risks that happen within your business- such as low employee engagement rates- and you have control over them.
On the other hand, external risks are risks that are mainly controlled by forces outside your organization, such as the economy or competition. For obvious risks, a simple brainstorming session will be enough to point out the inherent risks of running your business. However, you will need some research to identify the less obvious risks. You can consult industry professionals, conduct competitive analysis, assess your business history, conduct market research, and even read through past studies to identify these risks.
Assess And Rank The Risks
What is the possibility of a risk occurring? If it does, what will be its impact? Answering such questions can help you pick the right solutions for the different risks you face. Do a little assessment and identify the risk appetite your business has and how risks can affect it.
Instead of only dealing with a single risk, also look for the impact that a chain of risks can have on it. While simple risks might seem trivial, it might be the beginning of other problems. Once you have completely assessed the risks, use a risk matrix to rank them. The matrix can act as a reference for prioritizing the different risks.
Choose Your Battles Wisely
While you might want to handle all risks your business faces, scarce resources will make it tough to do so. Ideally, you should pick a risk treatment option with regard to your business’ risk appetite. There are four ways to treat risk, including transferring it, accepting it, mitigating it, and avoiding it.
For any risks that seem too big for your business to handle, even with the intervention of other parties, consider avoiding it. As for risks that are too trivial to have an impact on your business, you can accept them. On the other hand, risks that you have the resource to handle should be mitigated. Lastly, if treating risks will be less costly or more efficient by outsourcing it to another party, then you should consider transferring it.
Monitor Your Risk Management Plan
Risks landscapes are ever-evolving, with new risks coming up every once in a while. While you might have had the right risk control measures to eliminate yesterday’s risks, there is no promise that these measures will suffice even for future risks.
On the other hand, your business orientation towards certain risks might change with time. For instance, while you might have avoided venturing into Europe because you couldn’t comply with GDPR, your orientation to this risk should change immediately, you feel that you can comply. As a result, you need to keep updating your risk management plan often.
Ideally, you should allocate the task of risk monitoring to specific individuals to create a culture of accountability. You ought to also set risk monitoring schedules which are to be followed by regular meetings. During these meetings, risk managers can discuss the posture of your business with regard to your risk landscape. Refining your risk control measures will prop your business up for success.
Success in the business world is reserved for businesses that can tame their risk landscapes. Every risk, however trivial, should be accounted for. Consider the tips above to create the best atmosphere for your business to grow.