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Risky (New) Business? Minimising The Considerable Risks Involved When Starting Up A Company

Estimated reading time: 7 mins

In business, risk is bad. This is because risk to the success of your enterprise is also a threat to its longevity and finances. The good news is that risk can be managed and minimised if you are smart about the way you start up your business. A topic you can find out more about in the post below. 

Planning

The first risks that you need to be aware of when starting up a business are those that can impact on the planning stage. Yes, unfortunately, even in its embryonic phase, your business can be subject to all sorts of hazards. 

One, in particular, to look out for is confusion between aims and goals on your business plan. Something that can not only make it harder to succeed but can make you look less professional when pitching for funding as well. 

In fact, aims and goals are quite different. With the latter being the overall thing that you wish to achieve. Such as running at a profit within the first three years. Goals, however, are smaller, more broken down steps that will help you to achieve your overall aim in the long term. In this example, a goal might be to increase sales by 20% or recruit enough new employees to be able to expand. 

Additionally, there is another area in the planning stage that can be risky, too – financial projections. In fact, as these are essential when securing funding for your startup, they must be as accurate as possible. 

One reason for this is because any potential investors will scrutinise this area of your business plan very carefully. While another is that if your projections are off, you may end up spending far more on getting your business off of the ground than you imagined. Something that can affect profits, and viability too. 

Product

The next risk to be aware of is those associated with the product your business will sell. Of course, part of the reason you have chosen to go into business is that you have had a stellar idea for a product or service that can be sold to customers. However, as many startups quickly discover a bright idea on its own, is not enough to sustain a business. 

In fact, if you are looking and manufacturing and selling a product based on your first original idea, with little modification and development, you could be in trouble. This is because the chances are that your product concept has not been refined enough, or targeted correctly to the market you are hoping it will appeal to. Something that makes it very unlikely that it will succeed in a competitive marketplace. 

To that end, you must invest in proper research and development of your product. Well before you even get to the startup point, let alone when it’s time to launch. 

Talking of launches, this is another area that can be risky for a new business. In fact, many stake their success or failure on how effective their initial launch is. 

However, it is worth noting that this doesn’t have to be the case. In fact, a soft launch may be a much smarter way of testing the waters of your target market. A tactic that will then allow you to go away and tweak both your product and your marketing strategy to increase their chances of success. 

Employees

When starting up a business, it also pays to be aware of the risk that taking on employees can cause. Although, not taking them on and trying to do everything yourself can also be a hazardous and impractical option!

One danger that startups often come across with recruitment is satisfactorily identifying the need for employees with particular experience, skills, or personalities. In fact, in a startup situation, the types or calibre of employee you need may not be apparent until things are up and running. Something that means you risk working at below maximum efficiency until you have resolved this issue. 

Another common risk to be navigated is successfully recruiting and retaining critical staff. After all, a small business with a high staff turnover will experience all sorts of confusion, hassles, and delays that put their success under threat. 

With that in mind, paying attention to the recruitment process that you use is vital, especially if you will only be operating with a small team to start. Also, creating a positive work environment where employees are valued, and trained well, especially in the initial phase is crucial. 

Market

The market that you operate your business in will also come with its own sets of risk that you need to be aware of. After all, changes such as an economic downturn are likely to affect the demand for your products. Especially if they are regarded as a luxury item rather than essential. In fact, during times of austerity, you may wish to think twice before launching a high-end product. Unless your demographic is so rich that they will feel little impact from economic factors. 

Another aspect of the market in which your startup operates that you need to be aware of is your competitors. In fact, you can often significantly decrease the risk involved for your business by observing what your closest rivals have done, and learning by their mistakes. 

Of course, you cannot take the risk of having a product or approach that is too close to those you are competing with. Otherwise, your business is in peril of not being unique enough to garner a loyal following. This being something that can help to sustain your enterprise over the long term, once the initial startup bubble has burst. 

Legal risks 

Most entrepreneurs know that there are legal dangers associated with starting up a business and do their best to stay on the right side of the law. However, some common issues can jeopardise both your company’s good name and your finances as well.

One of these is getting involved in intellectual property or IP debate. That is your company is accused of plagiarising the work, design, or idea of someone else. In fact, in this online world that we now operate the lines between inspiration, free use, and plagiarism are not as clear as they once were. A situation that has resulted in more than one entrepreneur getting themselves into hot water over IP. 

With this in mind, being very careful about the IP that your business uses with is a wise idea. What this means is that credit is given when inspiration is taken, and free use assets are referenced correctly. Additionally, avoiding plagiarism by contacting the original IP holder and paying for usage rights is an integral part of working correctly with all sorts of subcontractors and freelancers, including illustrators, and graphic designs. 

Unfortunately, it is also possible for your startup to get into legal hot water by being sued. This being a situation that may be initiated by a customer or even an employee. In fact, several situations often result in legal proceeding against a business. The first being an injury at work, or on your premises. The second is harassment or unfair dismissal, while the third is if you break your contract with another supplier or provider. 

Of course, the savvy thing here would be to minimise these risks by avoiding any of the above behaviours in the first place. Although, it certainly doesn’t hurt to have the right Business Insurance cover either. Then if the worst does happen, you know that you will be covered both for the legal help you’ll need to fight your case, and any compensation that you are ordered to pay out as well. 

Financial

Finally, startup owners need to be mindful of the considerable financial risk both they and their investors enter into when going into business. The extreme end of which is when the entrepreneur puts all of their own personal capital into launching a company. Something that in the worst-case scenario can lead to bankruptcy. 

Then there is the danger that you will not be able to raise enough money from investors to get your business off the ground in the first place. Oh, and the threat that you may not get any profit for the capital that is invested. 

Another financial risk is that you may not be able to access any additional funding that you need to keep your business afloat. Especially in the first difficult few months either. Then there is the funding you will need to secure to scale and expand your business if you are to ensure it stays around for the long term. 

Sadly, such funding problems are not always easily resolved. Although, the best way to minimise these risks is to run your startup as efficiently as possible. Something that should maximize its chances of turning and profits, and so success. After all, in the business world success begets success. Therefore those with healthy financial books are the most likely to be able to secure additional funding and continue on with minimum risk to their company.

 

About the author /


Simon is a creative and passionate business leader dedicated to having fun in the pursuit of high performance and personal development. He is co-founder of Applied Change, a Business Change consultancy based in the UK. Simon is also an Ambassador for Gloucestershire business. Simon is an Associate Member of the Chartered Institute of Professional Development.

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