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Hedging Your Bets: What Should Startups Know About Developing a Risk Strategy?

Amanda Castleman
Journalist

Founders often hyper-focus on launching and building their business but neglect to mitigate risks by developing their risk strategy. That’s understandable, though shortsighted, as proactivity can future-proof your success.

Risk management is both an art and a science: the examination of what could go wrong and how to handle it cost-effectively. Many companies like to quantify concerns on a risk assessment matrix or spreadsheet. Often teams focus on “company-killer issues” first, like not running out of cash and not monitoring legal and regulatory obligations. Vulnerability to cybercrime also features highly, especially as the FBI reports it has surged 400% since the pandemic began.

Few people relish deep-diving into fears; however, researching the worst-case scenario can help protect your startup. For example, despite the need for insurance coverage, three-fourths of U.S. businesses are underinsured by 40% or more, according to research firm Marshall & Swift/Boeckh. Startups are operating without any safety net—a common issue among first-time founders—or have insufficient protection in vital exposure areas. Whereas, most repeat entrepreneurs make insurance part of their early growth plans. That’s wise, as 18% of startups fail because of hurdles like getting sued or navigating legal disputes, according to CB Insights, the venture capital database.

Founders face potential threats from many sides, from ransomware to accusations of libel and damage to a rented office space. Vouch can help startups take a proactive approach to risk strategy and mitigate any fallout.

Hope for the best, plan for the worst

“A common pitfall is believing that everything will ‘follow the plan,’” says Leslie Forde, CEO and founder at Mom’s Hierarchy of Needs, an online community. “Expect the plan to change! And even some conditions that you’re planning for will surprise you."

Forde continues,

Understanding that’s normal means that you’ll give yourself permission to change strategy faster and think more broadly about what the solutions may be.”

Make this easier by listening to customers throughout the process, not just while doing a launch or roll out. It not only helps you adjust in real-time, Forde says, but it also helps you to “remain positive, hopeful, and solution-oriented when it’s time to tweak or overhaul your strategy.”

She also recommends that founders focus less on specific financial models and more on scenario “types” like delays getting to market, channel distribution changes, and shifting market conditions. “If your product (or new feature) launches three months, six months, or longer from the date you expect, it’s important to understand how that impacts your priorities. Everything from your launch strategy to your costs or funding needs,” she says.

Another frequent issue is being off-base with your target audience or your perceived value to it. Forde says: “Again, think about how each risk type affects your plan and overall viability. Then you can react with greater confidence and speed when something unexpected happens…like a global pandemic. 

Be strategic, but don’t neglect the bottom line, advises Kavita Sahai, CEO and co-founder of 21 drops, an essential oils brand, and a former Lynn University adjunct professor who helped establish its entrepreneurship program. Stock prices and exchange rates can fluctuate, along with tax demands and access to ready cash.

Sahai says: “The biggest mistake I see entrepreneurs make when it comes to growth and risk strategy is not paying attention to cash flow. Ultimately, you can and should take strategic risks, but you should also evaluate how it affects your burn rate.”

Help! You need somebody!

Finally, remember that you needn’t bear all this weight alone, says Alex Goryachev, author of Fearless Innovation and the Chief Innovation Officer for Cisco, who has also worked with IBM, Pfizer, and Napster. “The days of lonely innovators working alone in a garage are long gone.

“Successful startups grow, blossom, manage risks, and become resilient because they are always connected to the outside world. They are urgently curious to explore diverse perspectives, learn, collaborate, and co-innovate together. They understand that innovation is a team sport.”


 


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