That article was published on 30/06/2017 by Philippe Goutière, ABIL, on Silicon Luxembourg.
Those who work in start-ups are usually some of the most talented people in their respective fields. And it is going to take all that talent to turn a business opportunity, the one in which they believe, into real value. But the flipside of opportunity is “risk”. Needless to say, that risks can have negative consequences and in some cases, destroy both the company and its founders in the shortest time.
While risk is an integral part of entrepreneurship, there are different ways to approach it. Entrepreneurs who succeed with their company over the long term have all one point in common: they are aware of the risks to which their business is exposed and have learned to manage them.
What are those risks?
There are obviously a multitude of risks and threats that affect start-ups. Early-stage companies are commonly said to face the following ones in particular:
- financing risk: you can’t raise money when needed;
- product risk: you can’t translate your concept into a working or attractive product;
- business development risk: you can’t get deals with other companies;
- timing risk: You are too early or too late to the market;
- technology risk: you rely on poor systems; or
- credit risk: your customers are not paying you in due time.
The more you grow, the more you discover additional risks. Just consider the following ones affecting companies at any stage of development: market risk, legal (regulatory) & tax risk, people risk, political risk or environmental risks…
What are the best practices?
The best practice can be summarized in one simple advice: Manage your risks!
“Risk Management” is the activity of thinking about what could go wrong in the company, and what are the best ways to mitigate the risk. Companies who have an adequate understanding of their risks are in a superior position to those who do not; on the long run they will outperform.
There are no exceptions, even for start-ups; they should implement a corporate governance including a strong risk governance element. Board is ultimately responsible for every activity within an organization. Together with senior manager, he should have a deep understanding of both the opportunities that the company is pursuing, and the risks that are related to them. He should ask the right questions, such as: what are the main risks we face? What is the likelihood of those risks occurring, and what would be the consequences for the company? How much of that risk do we want to (and are we able to) manage internally? …
In many instances, insurances will prove very useful risk management tools, by transferring the adverse effects of a risk to a third party. Some of those insurances are mandatory by law, others are taken out because of a deliberate decision of the risk management body within the company.
In the following articles, we will focus on some of the key risks that you may face in running your business. For each of them, we will consider both internal risk management and external risk transfer solutions. We hope you enjoy the reading.