What Kills Startups? An Entrepreneur's Guide To Risk Management

Startups are mushrooming across the world, and many have transformed into giant conglomerates such as Alibaba Cloud, Airbnb, Uber and others. More...

  • What Kills Startups? An Entrepreneur's Guide To Risk Management
    Liam Walker Image Liam Walker

    What Kills Startups? An Entrepreneur's Guide To Risk Management

    • Thursday 25th of July 2019
    • Startup

    Startups are mushrooming across the world, and many have transformed into giant conglomerates such as Alibaba Cloud, Airbnb, Uber and others. More and more entrepreneurs are coming up with brilliant ideas that are changing the way we travel, shop, eat, read, work, etc. Australia has also experienced a surge in the growth of startups in the fintech industry, education sector, and technologically advanced domains like AI and internet of things.

    The stable economic environment and abundance of opportunities in thriving commercial centres like Sydney and Melbourne have made Australia a sought-after name for startups. However, it is not easy to sustain a new business in the globalised and aggressive markets. It is common knowledge that half of the startups fail before they reach the landmark of five years.

    This is the reason why many people choose to invest in profitable businesses for sale in Australia rather than launching a new set-up. If you are among the risk-taking people who want to do all the hard work and build an organisation from scratch, then you need to be aware of the hurdles. Here is a rundown on the usual suspects that kill a startup and the ways of managing such risks effectively.

    1. The Risks That Can Bring Down A Business Entity

    Running a business is a risky affair. You have to deal with a plethora of threats that include both inconsequential hazards and significant challenges. The insignificant hazards can be further divided into problems that can be overlooked and others which need a little alteration to get things fixed.

    Similarly, the bigger risks can also be divided into those which can be reduced through insurance and those risks which need to be analysed and controlled to alleviate their damaging consequences. Let us discuss them in detail.

    Inconsequential Hazards Which Can be Overlooked

    These are the threats which do not create financial challenges and can be easily disregarded as they do not pose any significant hurdles. For example, getting stuck in a traffic jam and reaching office late. It does not affect the business much as other team members take charge until you make it to your cabin. You can either pass it as a one-off thing or leave home a bit early to avoid the rush hour. In any case, it does not cost you a significant loss and thus it can be ignored.

    Insignificant Threats Which Can be Fixed

    These are the threats which can become an impediment in your business operations such as an employee working on an important project leaving the company midway. It can be disastrous as you are answerable to the client for the delivery of the project. To avoid such situations, you must not give all the responsibilities to one person and have a contingency plan for making deliveries on time. Prepare other people in the team as a backup if someone falls sick or is not able to make it on the final day.

    Insurable Threats

    These are big problems that can bring the operations to a standstill such as loss of property or resources due to a natural disaster like floods or fire. Businesses need to insure their employees and machinery to avoid losses in various unforeseen situations. Depending on the size and type of your business, you need to have the following business insurances in Australia – workers compensation, third-party personal injury, product liability, public liability, professional indemnity, machinery breakdown, cyber liability, etc.

    2. Threats Which Can Lead To Business Failure

    These are the scariest of them all as they can plunge the company into the darkness of oblivion. They can be classified as market or competitive risks, technology risks, financial risks, human resources risks, and legal and regulatory risks. Let us take a look at the importance of management of these risks.

    Market/Competitive Risk Management

    The marketplace in Australia is flooded with products and services that cater to the needs of the population. Thus most often start-ups offering the same thing in a new package fail to secure the attention of customers. This is the reason why it is vital to assess the market potential to understand the needs and wants of the target audience, their purchasing power and buying behaviour.

    Additionally, a competitive analysis will yield results of what is being offered in the market and whether it needs improvement. If you witness a gap between the need and the supply, then fill it with your unique products. The idea should be to deliver value for money.

    Also, you should not put your entire money into one product. Make a prototype with a few features and check the pulse of the customers. If it works, then keep making improvements and make the buyers come back for more. For example, Apple keeps innovating and comes up with a new version of the iPhone almost every year.

    Technology-Based Risk Management

    IT has become the backbone of most businesses, and a simple outage or online data theft can cost your company millions of dollars. Other challenges that can crop up during the operations are lack of technical knowledge, limited functionality of the software, negligible support from the vendor, integration problems etc.

    It is imperative to research the technology which fits your organisation and finding specialised experts who can leverage it and enhance productivity. The vendor should be in the scheme of things and provide the necessary support. Create multiple lines of defence for the security of data.

    Financial Risk Management

    Most startups are plagued by the financial threat, which implies running out of cash and burning up all the secured funds before generating any profits. As a startup, you will be burdened with a plethora of expenses and money will be a scarce commodity. Thus it is crucial to keep track of the cash flow and cut down on the costs for effective financial management.

    You can utilise an accounting software to stay on top of the information related to incomings and outgoings. Do not splurge on unnecessary things like a large office set up and lavish interiors to impress the clients. Keep it minimal in the beginning and lure them with your conviction and hard work.

    Human Resource Risk Management

    When you are establishing a company, you tend to find people in your network and family to help you out with various business functions. As you start working, you may find that your mindsets are quite different, and the approach towards work is also dissimilar. It can lead to all sorts of confrontations which can snowball into the fragmentation of the core team and resignations.

    Besides the management, such issues can emerge in your supplier and vendor relationships as well. To keep things amicable and motivate everybody to work towards the same goals with a defined vision, you as a leader must bring everyone on the same page. Set personal and team goals for all and enthuse the members with vigour to work in cohesion to get the best output.

    Legal And Regulatory Risk Management

    There are specific business laws which need to be complied with to follow the fair trading practices in Australia. Each state and territory has its own set of fair trading laws. Every business must adhere to the following regulations - Australian consumer law, product liability regulation, environment legislation, and privacy laws. You know all the government regulations and must hire a business lawyer to help with the legal obligations.

    Conclusion

    If your business is facing any of the risks mentioned above, you must implement a mitigation plan with an allocated budget. However, you need to identify if the risk is significant enough to be fixed or can it be overlooked. Whether you plan to acquire a business for sale in Australia or launch a startup, you will need risk assessment and management to stay ahead and relevant to your mission.

  • Author Info Liam Walker

    Liam Walker has been a business expert for around 40 years and had specialisation in the franchise sector. He is passionate about helping people by guiding and motivating them to become financially secure and independent through business. His free training sessions on “How to Achieve, What you Desire” has changed many lives for good. Business2Sell  is honoured to have Liam as their Guest Author.