The Startup Entrepreneur’s Guide To Risk Management
Only 44% of small businesses stick around four years or more. One big reason so many go away: Poor risk management.
Fortunately, help is on the way from the guys at VC Experts (subscribe to their email here).
They’ve published a helpful how-to on the art of risk management from Akira Hirai, the founder and managing director of Cayenne Consulting. With permission, we’ve excerpted the best bits below.
The Risk Management Framework
“Risk Management” is the art and science of thinking about what could go wrong, and what should be done to mitigate those risks in a cost-effective manner.
In order to identify risks and figure out how best to mitigate them, we first need a framework for classifying risks.
Once we know the severity and likelihood of a given risk, we can answer the question: Does the benefit of mitigating a risk outweigh the cost of doing so?
- Quadrant A: Ignorable Risks
- Quadrant B: Nuisance Risks
- Quadrant C: Insurable Risks
- Quadrant D: The Company Killers
Identifying & Mitigating the Company Killers
Companies flatline when the cash runs out and total current liabilities (i.e., bills due now) exceed total liquid assets. Risk management is all about identifying and mitigating the uncertainties — especially the company killers — that surround cash flows.
Uncertainty plagues businesses in countless ways, but we can group most company killers into the following categories:
- Market Risks
- Competitive Risks
- Technology & Operational Risks
- Financial Risks
- People Risks
- Legal & Regulatory Risks
- Systemic Risks
The knowledge of risk management is also essential establishing a startup business. If you have any opinion, leave it in the comment box below or send us a message.
