© Business.com Media, Inc. All rights reserved. | 888.441.4466

© Business.com Media, Inc. All rights reserved. | 888.441.4466

Table Of Contents

• An Overview of Risk Assessment for Startups – Page 1

• Market Risks– Page 1 & 2

• Insurable Risks– Page 2 & 3

• Financial Risks– Page 3

• Leadership and Data Risks– Page 4

• Tools for Measuring Risks– Page 4

• Conclusion – Page 5

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Risk Assessment for Sailing Startups- An Introduction

Small businesses just setting sail are

extremely vulnerable to different kinds of risk.

Studies of overall business success find that

less than half of embarked startups are able to

succeed in the long run. This includes a U.S.

Small Business Administration study showing

that only 44% of surveyed small businesses

lasted four years after leaving port and

commencing operations.

As a startup, small businesses are taking risks

in many areas and are faced with insecurity

especially in the following categories:

• Market Risks

• Competitive Risks

• Technology & Operational Risks

• Financial Risks

• People Risks

• Legal & Regulatory Risks

• Systemic Risks

Market Risks

A market risk is, in a word, unpredictable.

Startups can spend thousands in market

research, but a magic eight ball still won’t

accurately predict the acceptance of a new

product by the current market. Steve Jobs once

said “Real artists ship”- meaning there’s no

infallible way to forecast the success of a startup

until you start selling.

# of Years 2 4 7 Success Rate 69% 44% 31%

Source: getbusymedia

Source: BusinessInsider

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Examples of major market-based risk that can

destroy your startup include the following:

• Lacking a large consumer base for a

product or service

• Having too much competition to

sustain a business model

• A slim and starving profit margin

based on costs and expenses

• No actual demand for offered

products and services

In addition to these possible perils, there other

dangers that challenge the livelihoods of

startups and small businesses. While larger

companies or enterprises have the appropriate

resources to handle these risks, many small

businesses will unfortunately sink to their fate.

Looking at essential risk categories can help

startup leaders ensure their businesses stay

afloat through any major crisis or failing.

In the worst case scenario, being aware of

potential hazards can prepare businesses to

adapt or shut down the business in a well-

planned fashion.

To provide more insight on the “risk

assessment equation” for startups, this

helpful resource from Cayenne Consulting

shows the “compounded risk” of several

major risk factors: the firm uses a

combination of ten 10% risk factors to arrive

at a real survival chance of 35%.

Insurable Risks

After you’ve successfully launched your startup

and have ventured the initial stormy seas,

insurable risks lurk beneath the water of your

small business and will most likely continue to

resurface along your entire journey.

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That being said, it can be difficult to assess all

kinds of insurable risks in the initial stages

before leadership has actual operational

results to analyze. The good news is most

major crises can be effectively covered by

business insurance. Major categories of

insurable risk include:

• property risks – risks of property damage,

theft, vandalism etc.

• litigation risk – risk of personal injury

related to business

• copyright and intellectual property risk –

risks related to lawsuits over brands,

products or services

In addition to these standard forms of risks,

there are other kinds of “black swan event”

risks that apply to some less common forms of

crisis that might affect an entire community.

Startups and small businesses can look at the

same kinds of ‘terrorism coverage’ or

‘biohazard coverage’ that other businesses use

to protect themselves against unforeseen local

emergencies.

The key to handling insurable risk assessment

is open communication with insurance

providers who can often address some of the

issues that small business leadership overlook

with a list of insurance needs.

SMB leaders can find out more about different

kinds of insurable risks from resources like this

one from Rollins Insurance.

Funding

Another major part of the risk assessment

equation involves the capital startups and small

businesses require. In this regard, a startup may

not be entirely different from a larger corporation

in the types of financial models that need to be

in place. The prevailing idea in the business

world is that debt is a necessary part of many

startup business models.

Critical risk assessment components involve

securing and managing debt. The following are

financial challenges small business owners must

deal with:

• networking with venture capitalists

and angel investors

• securing small business loans

• paying off debt over time

• showing sufficient growth or

expansion to warrant new lending or

funding

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Leadership Risk

Yet another risk assessment category involves

small business leadership. This is one that may

or may not be very relevant or actionable

depending on how the business has

developed. Some startups are tightly controlled

by one or two people, in which case, issues

with leadership risk may be less a part of

general discussions.

Data Risk

The category of data risk assessment is one

that has not been a very traditional part of most

risk assessment plans. However, with the

advent of new cloud-based services and data-

centric models, the vast majority of businesses

today, even startups and extremely small

companies, rely on collected data sets as one

of an enterprise’s most valuable and necessary

assets.

From customer information to detailed product

and service metrics, specifically handled data

sets allow for efficient and effective business

processes. By the same token, failing to

maintain these data assets can be enough to

close down a business.

Take a detailed look at data risks and how to

handle them through “IT Risk Assessment” with

this in-depth guide from electronics standards

provider CompTIA. This resource provides

insights into how managers assign numbers to

risks and evaluate chances of various effects on

IT architecture.

Measuring Risk

In addition to contacting experienced insurance

providers, and looking at various market risks,

entrepreneurs can use specific tools to help

gauge risks that they would not otherwise have

considered. LinkedIn, the social networking

platform, now offers a new feature aimed at

helping businesses identify major risks and

provides actionable ways to handle them

This tool, unveiled on select sites like

Startups, involves using a variety of true or

false questions that lead entrepreneurs and

other users toward more understanding of

what they may face as they go forward.

By brainstorming around each of the above

categories of risk, small businesses and startups

can go more confidently into the future armed

with knowledge that will support better chances

of success.

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Assess Before Starting.

Thanks and come back soon.

Properly addressing all these possible risks in a thorough manner

can save your startup from unsalvageable disasters in the future.