Risk is a part of doing business. However, businesses in different industries are exposed to various types of risks. Startups tend to be exposed to the most risks, and this may explain why most of them fail before their fifth yer. As part of their risk management and risk assessment program, startups should engage in the following activities.
1. Disaster Preparation
A startup is basically an SME, and SMEs have one thing in common; they don’t take big shocks very well. In fact, multiple studies have shown that 50% of SMEs do not survive a big hit regardless of their balance sheet or age. Apply this to a startup, and the risk is compounded by a factor of ten or more.
Startups must have in place a disaster recovery plan that can help them stay afloat if things go south. The plan could be in the form of insurance (such as litigation insurance), redundant IT infrastructure, fire and accident preparedness, alternative go-to-market strategies, scalable production plans to handle unexpected demand, among others.
2. Proactive Risk Management
How do you handle risk in your startup? Is it part of your decision-making process or strategic plan? Established businesses can afford to put risk management on the no-priority list because they can take big hits and still survive. On the other hand, startups need to be aware of and proactively mitigate risk to survive.
It would help if your startup adopted risk management frameworks like the ISO 31000 or COSO ERM. These two can be implemented together by new or growing businesses trying to make risk management part of their operations and growth plans.
3. Using the Cloud for Risk Management
In the age of big data, businesses must start treating their data as an asset rather than a liability. Startups can use data to break into markets that are dominated by big business. With this in mind, the issue of data security and regulatory compliance comes into play. How do startups manage and protect their data?
Cloud computing could be used as a risk management tool. Instead of deploying and maintaining a local IT infrastructure, startups can use the cloud for data storage, backups and processing. Modern cloud solutions offer a robust redundancy framework that startups can use to their advantage. Using cloud backups can also be a risk management strategy for onsite natural disasters or breaches.
4. Managing Customer Expectations
Startups need to have a robust feedback management strategy for success. Listening to and reacting to customer feedback is usually a growth strategy for startups and even established brands. Customer expectations could make or break a business depending on the approach taken by the management.
The internet brought with it a new set of challenges and opportunities for businesses. Consumers now have several avenues to voice their feedback about the products they use or companies they are connected to. Negative feedback should be treated as a risk for startups while positive feedback should be seen as an opportunity.
5. Identifying and Prioritizing Risks
What do you consider risk in your startup? This is a question that any startup should ask as it drafts its risk assessment and risk management strategy. For some businesses, noncompliance is a significant risk while for others, staff turnover or labor disputes are major risks.
Startups should start by identifying common risks that affect new businesses and then delve into those risks that are specific to their business or industry. For instance, most startups have to deal with funding as a risk, while those in manufacturing have to worry about the cost of labor and other inputs right from the beginning.
Additionally, startups must learn to prioritize risk and only deal with those that present an immediate danger first.
Finally, Make Risk Management Part of Your Culture
Managing risk is not a one-off exercise. On the contrary, it should be part of everyday decision making. From compliance to feedback management, analyzing the competition to talent management, all these things must form part of a startups’ risk management strategy.