Risk Management for Start-Ups

I recently helped a client prepare to launch his firm. And although he has legal, financial, marketing, and administrative professionals to help him in those areas, he still carried an inordinate amount of anxiety focused on the potential threats to the business’s success. The anxiety was keeping him up at night. He had doubts regarding profitability, marketability, work-life balance, etc. Also, he thought his constant and unrelenting anxiety was just part and parcel of being an entrepreneur, but in reality, it does not need to get that bad. You have to face your concerns and mitigate them.

Risk Management for Start-Ups

The best tool to address this kind of stress and anxiety is confronting the causes, which is done through risk analysis and management. For example, he has enough resources to carry him through the first six to eight months after starting the business. Therefore, he was concerned over the possibility that he might go bankrupt and end up on the street. And of course, this is always a possibility in any situation; however, the probability rate was relatively low upon analyzing the existing and potential backlog. Still, to ease his mind, we set up risk triggers, such as losing revenue over the first two months, noticing low customer satisfaction, and other factors, which could lead to a lack of business and revenue.

Also, the part that my client was missing in dealing with risk (i.e., uncertainty) was the fact that just as there are “threats” in any situation, there are also “opportunities.” In his case, there is a great potential that he will be much busier than he had anticipated since his business started gaining traction even before he officially launched it. And although making more money than expected is always a good thing, this positive risk had to be addressed and any threat, since more business translates to more work effort required, which means additional staff. And that is one aspect of his business he had not considered, at least not so soon after launching.

Risk management always begins with identifying risks, both negative ones (threats) and positive ones (opportunities). This is not only essential to prepare a risk management plan, including the ways these risks can be addressed and mitigated, but it can also have a positive psychological effect. Because as I noted above, the probability of this client ending up bankrupt once he thought everything through was quite low, and this fact gave him peace of mind. Therefore, all risks have to be analyzed and rated per their probability of occurrence and the potential impact. For example, going bankrupt always results in a tremendous impact. Still, if the likelihood is low, the issue is somewhat diffused; consequently, if a risk is highly probable and has a high impact, that risk must be addressed in detail, whether positive or negative. Then, the appropriate risk responses, risk triggers, and other safeguards need to be put in place.

At PM Workshops, we provide consulting and training in general project management and the various parts of project and program management, such as risk management. Feel free to contact us…

Risk Management for Start-Ups

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