Some founders and CEOs of fledgling startups may end up making the mistake of trying to avoid all risks at all costs. The thought process revolves around the assumption that if the nascent enterprise steers clear of all potential risks, they'll avoid any turbulent times and have much calmer waters.
The fact of the matter is that risk is ubiquitous in the world of business, and for startups it's a constant. Without risk, the potential for real business opportunity shrinks dramatically. The trick, then, is to embrace these risks and prepare the business for their imminent approach. It's only by successfully overcoming these obstacles can startups grow and become sustainable over time.
Writing in Entrepreneur, Sunil Sethy, dean at the Global Risk Management Institute, noted that all businesses should be able to respond to a vast array of potential risks, including:
- Widespread shifts in the economy
- Constant regulatory reform
- Market volatility
- Uncertain U.S. Federal Reserve monetary policy
- Geopolitical crisis
- Cybersecurity threats
These are just a handful of the wide range of external factors that can suddenly change the shape of business. In addition, startups face a host of internal risks that need to be dealt with immediately, whether from a labor shortage, equipment failure or even a simple mistake that leads to a major financial loss.
Planning for risks
Since risks are omnipresent in any business environment, it's best to prepare for them early and have a plan in place. One way to prepare for any potential risks is for entrepreneurs to only take on the amount of venture capital funding they absolutely need to truly optimize operations. As noted by Forbes contributor Dileep Rao, brand-new companies seeking startup financing often overshoot their estimates for how much funding they'll need. By reducing the amount of venture capital requested, companies seeking startup financing potentially stand a better chance of approval.
In addition, the high cost of capital could potentially pose a risk to startups, if they're unable to scale operations quickly enough to meet a payment schedule. To reduce exposure to this risk, Rao suggested five potential ways to reduce the cost of capital. Entrepreneurs should focus on spending time learning everything there is to know about the company, market and industry. A lack of knowledge can cost a company. This makes knowing both the technical and financial management side of the business a great way to reduce the cost of recruiting a team that comes with a high price tag.