Risk management is a universal concept closely associated with managing and maintaining a balanced and diversified portfolio. The principle is highly applicable for startup investors but presents itself as an oxymoronic thought to startup founders. This is because startups are based on all-in high-risk project ideas that could either go big or bring the entire organisation down. But there are certain ways to reduce the impact of a failed idea and prevent your company from completely falling into a dark abyssal. Here are three ways to mitigate risks involved with startups.
- Believe in Luck and Gamble
The first thing that should understand is that startups are high-risk, high-reward scenarios wherein everybody is going in blind, and nobody is sure of the outcome. Markets are dynamic, and nobody can guarantee their future direction. Startups fuel the complexity and fickleness of the market by adding new concepts and ideas that may sway the customers. Ideally, theory and practice should be the same, but we don’t live in an ideal world.
Unpredictable and surprising contenders bag victories, while reliable and well-established businesses face failures. The epitome of such a scenario was observed in the COVID pandemic. Skype laid the foundation for a reliable video-conferencing app for work-based interactions for years and lost the battle by a wide margin to the underdog Zoom. Consequently, to add insult to Skype’s injury, several other platforms originated to shorten its market share further.
So, as a startup founder, it is not your responsibility to act like a theoretician or a market expert (you might pretend to do so in front of the investors). Your job is to be an empiricist and a visionary. You should constantly conduct small tests and experiments to improve your product or service continuously. Make smart investments in ideas with big potential. Like the people of old said, “Don’t put all your eggs in one basket.”
- Fail Fast
Unless you have countless successful startups and have the best business idea in the world, the chances are that you wouldn’t have a lot of capital lying around to make numerous large investments. So, you are bound to make small investments and remain vulnerable to failure. However, you could mitigate this risk by playing it smart. Not all your investments will reap profits for you. So, make small investments but diversify your options and always have a few backup ideas to invest in.
Time management is the fine line between winning and losing. Fail fast and be prepared to learn from the mistake and move on quickly. Resilience and tenacity are paramount requirements for a successful startup founder. Right yourself when an idea doesn’t work and pivot to its more promising variation, or just start something new entirely.
- Keep it Simple and Keep it Clear
Complexity in your early stages will lead you to your demise. Remember that you don’t have a lot of resources to squander, and complex and sophisticated integrated systems are costly. You have limited time and effort and attempting to produce something complex is a fool’s errand. Also, the likely outcome is a failure, so hoping for sophistication in the early stages doesn’t make sense. Consequentially, complexity fuels failure. The more intricate the machine is, the more it isn’t easy to fix. Hence, if you build a complex, innovative idea, then chances are that you would not be able to find a mechanic to fix the problem. Also, complexity accumulates naturally around a successful project.
Risk management can be applied to any business scenario but is the most unreliable in the startup business. Moreover, the unpredictability of the market and new ideas further add fuel to flames. However, implement the aforementioned principles to cushion the blow of future failures (if any).