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A Startup Founder’s Guide To Reducing Risk

The concept of risk is interesting, to say the least. The idea of risk keeps us honest and ensures we don’t make foolish decisions. In this regard, it’s a good thing. But the consequences of risk realized are painful and costly. In this sense, risk can be deadly. 

As a startup founder with a fledgling business, the goal is to reduce/eliminate as many risk variables as possible in order to give your young startup an unimpeded runway to fly to new heights. Do you know where to start?

There’s certainly a place for risk in the business world. But for the purposes of this article, we’re using broad brushstrokes to paint risk as a bad thing. In this regard, here are five surprisingly straightforward ways you can reduce risk and increase your chances of success.

1. Start Lean.

Most startups fail. This is a fact. And while each startup fails for its own set of reasons, many blow up as a result of trying to do too much too soon. As tempting as it can be to do everything at once, be patient and start lean. 

Building a lean business with lean products ensures you don’t pigeon-hole yourself into a situation where you’re unable to back your way out. It gives you an opportunity to see what works and what doesn’t before fully investing in an idea. (Practically speaking, it also keeps your costs down and prevents you from blowing through all of your cash on one failed project.)

2. Keep Excellent Records.

Documentation and meticulous record keeping is a must for startups. While you can probably get away with sloppy organization for a few months or years, it’ll eventually catch up to you.

Most importantly, you have to ensure that your accounting is pristine. A failure to stay up to date on accounting will put you in all kinds of legal danger zones. You should never leave the office at the end of any day or week without having all finances reconciled with the proper supporting documentation. It’s easy for one slip-up to snowball into another. Avoid this effect by being a stickler for the rules.

3. Keep Cash Burn Low.

Every startup, no matter how small or large, should have a clear understanding of its burn rate. (This is the critically important metric that tells you how much of your cash you’re spending on a monthly basis.)

“Burn rate, much like fire itself, must be managed effectively, or your start-up—like the nearly 30% of all small businesses who fold due to cash flow problems—will burn too hot before sinking below the waves,” PurchaseControl explains.

The first step is to calculate your burn rate. The second step is to lower your burn rate and effectively increase the longevity of your startup. Here are some ways you can do this.

4. Protect With Insurance.

Workplace injuries are common. Things like slips and falls, vehicle accidents, heavy machinery malfunctions, and even repetitive motion injuries in an office environment can leave employees unable to work. Workers’ compensation claims are a big deal and it’s imperative that you secure the right insurance policies to protect yourself when these incidents do occur.

It’s also smart to protect yourself against any ill advice you may inadvertently give clients by securing a strong errors and omissions policy. When combined with other layers of insurance, this will significantly reduce your liability.

5. Hire the Right People.

People are the lifeblood of any business. While you may be a one- or two-person team at the moment, there will eventually come a time when you have to expand in order to scale up. Make sure you take hiring seriously and don’t make foolish mistakes that put your company on unstable footing.

The right employees don’t just have skills and experience. They need to be the right fit for your culture and objectives. Otherwise, conflict will erode the relationship and leave your company worse off than before.

Putting it All Together.

There’s a time for embracing risk and a time for avoiding it. For startups in the early stages of growth and development, it’s almost always better to avoid high-risk scenarios in order that core interests can be preserved. As your business matures and becomes strong enough to withstand some of the potentially negative side effects of risk, you can become more aggressive in your strategic decision making. For now, continue to insulate your startup from unnecessary and lethal threats.

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Young Upstarts is a business and technology blog that champions new ideas, innovation and entrepreneurship. It focuses on highlighting young people and small businesses, celebrating their vision and role in changing the world with their ideas, products and services.

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