7 Ways to Minimize Early-Stage Business Risk
Entrepreneurs are born risk-takers. Seriously, the business world is riddled with uncertain outcomes and challenges we often have very little influence over. People who don’t have enough grit to navigate their companies through these sudden storms have no place running a startup.
However, successful entrepreneurs are also clever strategists. They pick their own fights and do their best to choose the safest path for their organizations. With no guarantees for success, these factors that actually can be tipped into the favor of one company get even greater significance.
Let us take a look then at a couple of efficient ways to minimize the early-stage business risk that should help your company to get a fair shot at the glory.
Limit the liability of the company
There are a lot of entrepreneurs out there to consider sole proprietorship or limited partnership the ideal business structures since they give complete control over the company and cut the amount of required paperwork to the bare minimum. However, both these options also tie together the company assets with your personal liabilities which is something you should strongly avoid. That is why we advise that for the first foray into the business world register your company as an LLC. This way, even if you face bankruptcy, your personal assets will be protected and you will live to fight another day.
Run a thorough market analysis
You can’t hope to reach any level of success if you don’t have a pitch-perfect understanding of the people you are selling your products to. The clients’ habits can be influenced by a whole slew of factors like size, average age, growth rate, state of the local economy, market profitability, and so on. Running a detailed market analysis will help you uncover all these small quirks and model your portfolio after these specific circumstances. The presence of local competition doesn’t have to be a bad thing since you are entering an established market but in this case, you need to offer some form of the unique value proposition.
Get necessary insurance
This is an excellent way to transfer a large portion of the financial risk to another party a very reasonable compensation. However, you need to pay close attention to the agreements you are signing. There are some insurance companies that will use the standard plans like general liability insurance and business income coverage to sneak in the so-called junk insurance or the clauses that are effectively useless to you for which you are asked to pay often very high premiums. Even if something like this does happen, however, you are allowed to seek legal help and request a refund from the insurance company.
Set up a quality assurance program
This move will produce numerous benefits. For instance, standardization and quality control are the keys to faster and more efficient production. But speaking strictly in terms of risk management, your professional reputation is one of your strongest assets – you need to keep it protected at all costs. By making effort to test, analyze and constantly improve the products you roll out, you will make this job considerably easier. So, do your best to set some tangible quality standards, set up the appropriate KPIs, model the operational processes to deliver this level of quality, and constantly review the results.
Control the growth of the company
The goal of every company should be to grow and expand. Doing this at all costs, however, will spread your resources too thin and put your business into a very unfavorable position. That is why you need to devise a long-term development plan that will outline when, how, and under what conditions will your organization move in to close the market gap. Making your company compartmentalized, outsourcing the departments that are not critical to the operations, and moving the business infrastructure to the Cloud will allow you to easily upgrade individual resources and make the future transition much easier.
Establish strong leadership
Poor management is poisonous to the success of one company causing a whole range of problems like the lack of accountability, toxic work environment, and overemphasis on efficiency instead of resiliency. Make sure then that the senior staff in your company demonstrates the traits of effective leaders your employees will be able to follow and rally behind:
- Transparent communication
- Accountability and responsibility
- Leading by example
- Providing constructive and timely feedback
- Promoting employee independence and empowerment
- Goal-driven thinking
- People-oriented relationships with employees
Prioritize risks and threats
Last but not least, we have to point out the fact that not all risks pose the same level of threat to your company. Trying to mend all these problems at the same will, inevitably, cause you to lose focus and waste resources. That is why you need to set up a universal scale for assessing the probability and far-reaching consequences of these risks and split the threats you are going to face in the future into three main groups:
- Very likely to occur
- Some chance to occur
- Very small chance to occur
Your risk management resources should be then distributed according to the priority of these threat levels.
We hope these few examples gave you some general idea about the major risks that are associated with running a startup as well as pointed out the solutions to these common problems. Starting a company without taking a certain level of risk is impossible. Being aware of all these risks and knowing how to reduce them to a manageable level is what separates successful entrepreneurs from the less fortunate ones.