There is risk associated with all elements of business, but perhaps no aspect more so than entrepreneurship.
In many ways, from the tax system to the clout of large corporations, the odds are stacked against those who would much rather create their job as opposed to working for someone else.
George Bernard Shaw, notable 20th-century political activist and Nobel Prize winning playwright once said:
“Some men see things as they are and say, ‘Why?’ I dream of things that never were, and say, ‘Why not?”
It is this mindset that drives many entrepreneurs today. Even in the face of the large financial risks associated with building a company, small businesses and solopreneurs are paving the way to the future of how business is done.
Launching a startup comes with both unavoidable and avoidable risk. There’s no way (at least, that we know of) to eliminate your risk completely—but several steps you can take to eliminate as much risk as possible.
Know Your Market, Be Adaptable
Risk cannot be avoided if you don’t know about it. Before launching an MVP, and even before seeking out financing, you’ll need to know your market better than anyone else.
What’s the barrier of entry for your market? Are you protected by patents or can your product be replicated by others? How many other startups are attempting the same thing as you? Are you going to slip into the market or disrupt it?
When learning about your market, it is best to try and look at things objectively. While we’re sure that nobody else is building a business quite like yours, pretend you’re the one seeking out financing—not the other way around. What can you easily see in other startups that show value and growth potential? Can you see those values in your own company?
Knowing your market will help you formulate an air-tight pitch that’s immune to any amount of prodding. Beyond that, market research helps you and your company understand the task before you and what milestones need to be reached—and when. But knowing is only half the battle, and knowing what to do with the information is the other half.
Shiv Nadar: HCL Founder, Chairman and CSO said:
“Adaptability and constant innovation is key to the survival of any company operating in a competitive market.”
By being well informed on your particular market or niche, this affords you the ability to adapt your business model based on market trends and customer habits, and thereby improve upon the products and services that your client base will come to expect, as well as predict future market events, and plan for the future accordingly.
No, we’re not talking about sports.
Startups incubate products and services that can take months or years to develop. To potential investors, that presents a great risk of failure. That’s why you need to know everything about the minimum viable product (MVP) of your company.
The MVP is often the milestone test for potential investors. Your MVP may be launched as a beta to early adopters, and their feedback used in pitch meetings. Your MVP also allows you to see which aspects of design need to stay and which needs to be dropped before expansion.
The MVP is your MVP in any meeting. It will prove to others that you’re worth the risk, and in turn, lower yours.
Proof of Concept
Similar to the MVP, the proof of concept wards off investors fears by showing value and understanding of the market.
We know that many former CEOs of dead startups express regret by not listening to the market and changing course to meet demand. Long before you end up in the difficult position of re-focusing your brand, the proof of startup can help steer you in the right direction before you commit.
The proof of concept, or POC, is what comes before the MVP. If your product or service is still months away from launch, but you need the money now, utilize a POC to show investors that you know what you’re talking about.
Pretty rhetoric works great in marketing, but not so much in the funding stage. Be straightforward. Present a product, a need, and any proof you have that you’re sitting in a product that sells. Use other the POC or the MVP to get you there.
Keep No Enemies
This next tip is a little difficult for many to accept.
Competition is innate in the startup world. Since so many companies launch in incubating cities on the west coast, they find themselves miles or even blocks away from other companies launching a similar product at the same time. There’s only so much money that can be handed out, so fighting these startups to claim your stake in a funding round is necessary…right?
In truth, your startup will go through feast and famine. You’ll exceed a quarterly goal at the beginning of the year and run in the red for months by the end of it. You will be both a threat to your competition and threatened by them.
That’s why need to keep no enemies. Look at fellow opportunists as possible collaborators rather than mortal enemies. This mindset isn’t just unique to fellow startups, but corporations as well. Studies show that 82% of corporations are willing to sit at the table with startups and start a conversation.
Do you want to minimize risk? Make sure that there’s more than one entity you can turn to when your startup ventures into some hot water.
Outsourcing is considered a dirty work by far too many people.
Isolationist or not, the idea of passing off jobs to others is in direct opposition to the values of many startups? Why outsource when you can do it yourself and reap all of the profits? This advice is great for manufacturing, but not as much so when you consider administration.
Outsourcing, in many ways, protects your employees more than it does yourself. Instead of hiring HR managers to come in and struggle to meet the company culture, you can enlist a PEO service to manage the payroll and other tasks for you.
The best PEO service provider will more than cover their expense, and take some of the personal issues out of the money side of things. The more you and your employees can focus on the MVP and other services, the better.
Finally, we have the issue of overhead.
Admin work, payroll, marketing, and rent all factor into the money burned simply by keeping the doors open. The more austere of entrepreneurs may be quick to cut labor costs to cut overhead, but remember that your employees are the lifeblood of your company. Cutting good employees hurts your startup more than the finances ever would.
PEO services help with administrative costs, but other costs need to be considered. Employ a bit of economic minimalism to your company. Do we need this location? Should we see about bringing in interns? How lean is our marketing campaign?
Ask questions that will protect your employees and minimize risk—not the other way around. Overhead is just the last piece of this puzzle, but if you approach your business with these six tips, we’re confident you’ll see places to protect your assets and present value to any investor or customer.
What are some risks that one may potentially face in your industry, and how would you best prepare to prevent those factors from negatively impacting your company’s standard operation?
Leave us a comment with your thoughts in the section below.