MIchael's Blog

Managing start-up risks

Managing risks as a start up

Starting and running a business certainty still has an appeal as more of us take the plunge and launch out into the business deep.  The growing trend of business start-ups is evidenced in the sudden increase in the birth rate of businesses over the last 5 years, particularly in the larger cities.  Perhaps its because of the seemed instability of the government or the fact that the term job for life is rarely used anymore, or maybe we all just want a better life and want to take control of our own destiny.  Either way many of us are voting for financial freedom with our hands and feet by registering and then starting a business.  If you are in the initial concept or start-up phase it can be very exciting and fun as the sense of hope for a brighter future  begins to drive you as well as the knowledge of  tremendous opportunity,  (not just financial rewards but a chance to build something of substance) there must also be acknowledgement that starting a  business comes with its fair share of risks....in fact i would even go as far to say the risks are even greater now than ever.  How do i know? Well just as the birth rate of businesses has increased, the death rate  is also on the rise)

For us to succeed we need to minimise the chance of failure as much as possible and this includes managing the risks that may impact us, if we can identify them early and take the right action, we have a chance to reduce their effectivity on our business

1) Identification of the risk is first and key...

Knowing what risks you may face is half the battle, because if you have knowledge about it you can potentially do something about it, even if it may occur anyway... but before I go any deeper lets determine what a risk is and why its so important to your business.

Whilst there are many definitions on risk in its simplistic of terms it is an instance or situation that if occurs can cause exposure to danger.  Its not considered a positive because if it does occur it will have a negative impact.  For example if i leave my house without my umbrella even though the forecast suggests there is a 90% chance of heavy showers, i am taking the risk of getting wet by not carrying my umbrella.  So if your business has £1500 sales coming in this month and to date your expenses are £1300 and growing, there is risk that you will not be able to pay all your business expenses.

So step 1 is list all of the potential risks that you could be facing whilst starting up, this may take a while but think of all the eventualities that could take place? Depending on how long your list is you may want to categorize them based on their grouping e.g. you will have financial risks, market force risks, people/staff risks, personal risks etc whilst it is good to be comprehensive from the outset it is important to only note the risk of consequence

2) Constructing a list

Once you have your constructed your list, you will need to prioritize them in an order to help you determine which one to tackle and what order.  To do this you will need to score each risk based on the level of impact it would have if it occurred and the likelihood of it happening.  There are many different numbering systems, but for the sake of argument let’s use 1-25 with 1 being the lowest score and 25 being the highest with each score no higher than 5.  Let’s look at an example

There is a risk your business won’t be able to provide you with an income for the first 6 months.. what impact would that have on you personally?.  Let’s aim for a 3 (out of 5) and based on the accuracy of your plans, how likely is it to occur? Let’s go for a 4 (out of 5) therefore your risk score would be a 12 (out of 25) which was calculated 3x4=12

Now you have your score for each risk, for ease of management, we will categorise it further by RAG rating it, 0-8 is low (green ) 9 – 16 is medium (amber) and 17- 25 is high (red)

The 17-25 Red category must be tackled first as these have been identified as high risk and having the most impact on your business should the risk occur

3) Taking the right action

There are many different ways of tackling the risk you have identified, the action you choose will be dependent on the severity of the risk.  When determining what action to take here are some options to consider

Do nothing – accept the risk.  If you have scored the risk and determined it to have minimal impact or very unlikely to happen, you may want to accept it for example if I left my house without an umbrella with a high probability it was going to rain, but I knew I was in the car all day then it has minimum impact so I will accept the risk.

Provide a contingency - Providing a contingency is an alternative option should the risk occur.  If I was planning to launch a product outside with a high probability of rain, a contingency would be to hire a nearby hall just in case it does rain

Mitigating the risk – A mitigation is another action you can do to reduce the impact of the risk e.g. using the risk that the business doesn’t make any money for 8 months which impacts you personally.  You can mitigate against this by continuing to work or getting a part time job which reduces the impact or effectiveness of the overall risk.

Starting a business is a risk, and being honest one of the traits that most entrepreneurs’ share is they like taking risks, however your risk does not have to be reckless.  By taking the time to manage the risk as best you can reduces the impact it has if it occurs.

Michael Maynard

Starting A Business Shouldn't Be Such A Gamble

Improving the odds of success

 

Starting and maintaining a successful business in today's market remains as challenging as ever, yet we are seeing a record number of new start-ups all over the world.  Whilst this trend continues to grow the amount of failed businesses or the business death toll also rises.  

In the UK 4 out of 10 business don't make the 5 year mark, with a third falling in the first year.  In the US the odds are only slightly better with just over 50% of businesses making the 5 year mark.  Lets put this into perspective, if you walked down your high street every other shop you come across won't survive within the next 4-5 years.

There are many reasons for business failure but here are 3 of the most common.

1) Lack of planning

2) Poor Finances, both in the management and cash flow

3) incompetence e.g. business experience/poor decision making

These areas of failure highlight two fundamental mistakes many startup make, they either:

Fail to plan - e.g. have no business plan in place at all.  Or they

Plan to fail - e.g. the plan they have developed was either something completed and left on the shelf, or the content in the plan wasn't practical or achievable, in another words it was full of holes

The good thing about this is.....we can learn from their failure and do better!!!  

Now we know the main areas of failure, we have a starting point from which to build upon, but must ensure that like any good building we build our businesses from the bottom up e.g. getting the foundation correct first.  In my opinion there are 7 steps or key questions we must answer which are at the heart of our build and will ultimately reduce our chances of failure, these are:

 

 

Taking the time to understand our business has to be one of the key's to a successful business.  We can no longer afford to start a business at a whim or rush toward a business go live date if we are not prepared, the results will be an unsustaintable business and could be costly in the long run. 

Answering each question provides the evidence and knowledge required to enable you to write a comprehensive and actionable business plan, without it you are simply guessing or learning as you go along (without any sustainable evidence)

 

What i am asking you to do is to test your idea, I want you to make sure that it is an achievable business from the outset, not a hobby or loss making venture.  Question 1) asks what is your idea? only you can answer that, but all the following questions are designed to test your idea, which means you will be required to go through this process for every business idea that you have.  You can not write or use a business plan if you do not truly know if you have a business or not.  Once you have tested it and concluded that you have a legible business only then should you develop a plan.  

 

The Business Plan - one of the myths surrounding business plans are that its old fashioned and not needed anymore, or a useless document (there are many for and against arguments on google)  but no builder worth his salt would build a house without a plan.  Infact any building, in any city large or small is built using a plan. Not only does it provide a clear picture of the end product but it also acts as a map for the many contractors working on the build.  The prinicple of a plan is exactly the same when building a business, it holds all the necessary information pertaining the build and acts as a central point for investors, colleagues, partners, sub-contractors and anyone else involved in building your business.  Once the business is up and running you can continue to refer to the plan to ensure that your progress remains on track.  For more information about what a plan should cover see www.7keystartupquestions.com  - PROBLEM 1 SOLVED!!!!! 

 

Poor Finances - The absence of finances in any business is a major problem, after all a business needs a good flow of finances to operate.  The reason for lack of finances can be a number of reasons e.g. poor sales, lack of investment, poor decision making or overspending, regardless of the cause this must be captured and solved in your plan, you may need to revisit your pricing policy, or marketing strategy (YOU CAN START TO SEE WHY YOUR PLAN IS SO PIVITOL)

Poor finances is not just the physical flow of money but many business owners don't understand enough about their business finances and rely solely on external support.  Whilst i appreciate the importance of utilising the skill of others (especially if this is not an area of comfort) however you need to know the basic.  You need to understand the relative terminology e.g.  to break-even, what it is and when and how it is achieved or your variable costs, and what makes them fluctuate. Understanding when to spend money and when not to is also key, and getting to grips with all the relative costs of your business.  Many of us would not travel to another country without understanding the basics about the culture or language of the country.  Getting into business is very similar, it has a culture and language that we must learn in order to operate, take the time to read, study and rehearse the business language.  PROBLEM 2 ADDRESSED

 

Finally and by no means least, lets address the third reason and arguably most contentious reason for failure - Incompetence.  Many fail due to lack  of experience in operating a business, what it takes and the behaviours you need to adopt in order to make it a success.  Lets deal with the experience side of things first.  So many great businesses have been birthed from a hobby or because a need/problem was identified and someone realised they could fix it.  Whilst this is a perfect way to start a business, there must be an acknowledgement that this is new and therefore help is required.  You may be excellent and have full knowledge of the subject area, but operating as a business is completely different, especially if you have been working for someone else all your life.  Experience can only be gained in the doing e.g. you learn as you go along, however to minimise the risk of failure, get a business mentor or critical friend (with experience) to help guide you, in other words use the experience of others. 

New business owners should evaluate the skills the business needs to succeed and evaluate their own skills to see if they are able to fulfill those skills, if not either buy those skills in (through the hiring of another individual or sub contractor) or re-skill in that area to ensure the business doesn't suffer.  Owning and running a business requires a whole new set of behaviours, some which may seem uncomfortable to us at first, but necessary in order for individual and business growth.  Entreprenuers think differently than employees, they take more risks, look for opportunities and have to be more socialable in their approach.  It is often good practise to participate in a psychometric profile of yourself to understand your own personality profile and that of an entreprenuer.  Once you have identified the differences, positively plan to adopt the missing behaviours e.g. if you are naturally shy and reclusive but your business requires you to be bold and social, plan opportunities where you can change your behaviour, attend more networking and social events. PROBLEM 3 FIXED

 

Starting, owning and running a business can be one of the best things in your life, as the rewards it can bring are exceptional.  You will have the opportunity to increase your wealth, your influence in the world and build a legacy.  But so many have started this journey and failed for many reasons, whilst nothing is certain in life, lets learn from the mistake of others and go on to build the great businesses of tomorrow.  For more information on the 7 steps of business or how to plan correctly see www.7keystartupquestions.com or www.helpintobusiness.com

 

Michael ac Maynard