[This article was written by Anica Oaks.]
Startups are an exercise in calculated risk as initial team members and investors collaborate to launch a new product or service. Despite the inherent unpredictability of founding a company, risk management is still an essential aspect of the process. There are several key hazards that can sink an otherwise-healthy startup if leaders don’t take the appropriate steps to address and mitigate the threats.
Problems with Personnel
People are always a crucial element in a company, but this is particularly true for startups. The efforts and attitude of every team member can have a defining impact on the quality and unity of an organization. Founders of a startup company have to dedicate themselves to identifying and cultivating leadership talent from an early stage to build a loyal and motivated staff. This also means they have to be willing to shift job responsibilities between employees or even let some of their team members go if they aren’t up to the task.
Insufficient Financial Flexibility
Many startups are tight on capital, which limits their options when dealing with any kind of internal or external obstacles. Businesses with low financial reserves struggle to meet new challenges, like rising supply costs or seasonal lapse in sales. Leaders should consider a capital reserve as foundational for their success and plan accordingly as they build their own contribution or seek funding from outside investors.
Lapse in Market Demand
Plenty of great products and services fail because they don’t impact the market as planned. This is why founders should always conduct ample market research before even considering launching a business. Misunderstanding local markets is also an issue when expanding or launching in unfamiliar territory. That’s why many larger companies use global management consulting services when entering a new market.
New Legal Rules and Regulations
Every business is subject to rules and regulations at the local, state and federal level. Occupational safety and health regulations apply to almost all employers in the United States. Many industries, ranging from food service to manufacturing, are also subject to specific regulations regarding environmental responsibility, financial reporting and other issues. Leaders of startups need to pay close attention to existing rules or regulations that may impact their business, as well as legislation that is currently proposed or debated within the political system.
There is no way to absolutely guarantee success with any kind of startup, but that doesn’t mean owners should leave their fate to chance. Mitigating these risks is possible as long as you conduct thorough research, create a detailed plan and implement it effectively.
Freelance writer and web enthusiast