B2BBoDStartUps

Strategy for StartUps and others Part-3: Risk Management.

Any organization, whether non-profit or for profit, whether small or large, whether a startup or a well- established and mature business, without a strategy it would drift away from its vision, mission and of course from its customers too. This is a follow- up from last week’s posting and it is focusing on Risk Management.

 

What is Risk management?
Risk Management is the process of identifying, quantifying, and managing the risks that an organization faces.

Simply put, 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.

Whether for-profit or not-profit, every organization’s outcomes and results of any business activity are unpredictable / uncertain, always have an element of risk.

Typical Risks could be:

  • Strategic mistakes,
  • Financial errors or misfortunes,
  • Legal/ Regulatory violations & other Governance problems.
  • Operational failures, including technical ones
  • Financial failures,
  • Market changes & disruptions,
  • Human/ Personnel risks
  • PR disasters
  • Acts of God/ Natural disasters
  • ……….

Risk can be viewed as a statistical concept that can be measured and managed with a statistical tool. Actually, everything on Wall Street works with that philosophy.

 

Most common StartUp Risks
Of course it is impossible for an organization to remove all risks; but it is important that the organization/ its Management Team fully do understand and manage the risks that they are willing to accept in the context of the overall corporate strategy. Although the Management Team is primarily responsible for Risk Management, the Board of Directors, the organizational Auditors (whether internal or external) and the general counsel should also play critical roles in Risk Management.

1. The Still Business Plan
It always amazes me to constantly meet founders who view it solely as a vehicle for funding. It’s your Business Plan! You need to put the energy to write and then execute your organizational ‘Handbook’, because that’s what your Business Plan essentially is. And it should be kept alive and constantly updated.

Quick Tip #1: Plan properly and for the right business environment!

2. Financial Forecasting
If you don’t know your organizations expenses and financial obligations and if you can predict the Worst- , Normal- and Best Case Scenarios, maybe you shouldn’t even be in business – even if you are running a non-profit organization.

And avoid passing the overview and responsibility of your financial spreadsheet to your accounting officer. You don’t need a BA in Accounting or Finance to read and understand a spreadsheet and there is no excuse to loose oversight and control of it.

Quick Tip #2: Mind the Cash Flow!

  • If needed, hire a TAX Advisor.

3. ‘Inadequate’ SWOT Analysis.
SWOT is a strategic tool to do Risk Mitigation – please refer to part 1 and 2 of this article to see some different views on SWOT analysis from a practitioner’s perspective.

Quick Tip #3: Make a Full Risk Inventory and Define all Contingencies.

4. Unclear Product or Service Definition.
A lot of founders especially ones with IT innovative solutions, they might have a solution but they are not clear as to what they are selling or providing as a business service and who are the actual customers or beneficiaries. Sure, they can say – usually in a very complex communication what their product or service is; but they have rarely put down the energy to clearly define what that product or service really is, communicate it in a way my grandmother can understand it, explaining simply the problems it solves, and even why is it worth investing in.

Your proper Business Plan will help you address and control that risk, enabling you to address a big enough market, the right market, the right risk in that market and of course the right opportunity within that market, at the correct point in time.

Quick Tip #4: Put Clarity in Defining your Product or Service.

5. Diversify Your Offerings
Plan to deliver a family of products or a full spectrum of services, so you could gauge and benchmark your real market. Even if you have a great innovative product or service, if there is no demand, you will not be in business for a long time and you will never be ahead of competitors very long. Build a plan/ a roadmap of your product or service offerings that will place your organization in a position of being able to expand your product- or service- line and keep one step ahead of competitors.

Quick Tip #5: Built Diversity in your Product – or Service- RoadMap.

6. HR & Team Risks
You need to consider all of the following – partial list:

  • Hiring is done legally
  • Payroll runs properly & Legally
  • All employer contributions are paid timely and in the correct amounts
  • Retirement and & Benefits packages & processes are in order
  • You are hiring the right persons
  • Teams are formed optimally and are constantly motivated
  • Teams work together and not in isolation- basically your organization should be a network of Teams!
  • …..

Quick Tip #6: Please don’t try to save money by recruiting friends, college buddies, family members, or hiring only interns. Hire real professionals who address your organizational capability needs and hire them in the proper way.

Simply put: Recruit the best and provide incentives.

If needed, consider outsourcing your Hiring and HR process to the right partner. It takes time to set up great teams.

7. No Strategic Alliances
You are not alone in this World- so, make friends by finding the right strategic partners who will assist you in accelerating your organizational growth. Sure you want to steer full speed ahead and kill every single competitor in sight. But if you do that will partners, you leverage on their potential and strength and thus risks could become more predictable and shared by ‘suddenly’ getting access to new customers, possible economies of scale, and shared resources.

Quick Tip #7: Find strategic alliances & other friends to help you reduce risks.

8. Lack of an active Helicopter View
This is so common with Technology StartUps; The founder is a tech guy/gal who puts all his/her energy in developing the product but forgers about every other single aspect of operations, or running the company, of executing the Business Plan. A greatest possible product developed, it’s possibly just a mere 10% of all effort and set of activities needed in running a company.

Quick Tip #8: Having a great product or service is NOT a strategy for running an organization.

9. Execution of UnMeasurable Business Processes.

All Plans and intentions and other paper- constructions are great but they mean nothing unless someone executes them. You need to understand and clearly define all the business flows associated with:

  • running your organization
  • the LifeCycle of your Product or Service Provisioning and Support.

And if you run something, unless you measure it, you will have no idea how good you are at it and how to improve it.

Quick Tip #9a: Measure the effectiveness of ALL your Business Processes.

Quick Tip #9b: Set up a Lean Organization (it’s not really about 6 –sigma)

10. ‘Growing the Wrong Way’ Plans.

‘Everybody’ seems to think that VCs (Venture Capitalists) are the answer to financing and growth. There are so many Case Studies why this is the wrong way of thinking. I will leave it up to the reader to google it and get further information.

Having money/ financing doe snot reduce your risks.

Quick Tip #10: You need to PLAN for organic and sustainable growth.

11. No Plans for Business Continuity
This is a topic on its own and one very close to my heart and experiences. I plan to write a full article on it in the next few weeks.

Quick Tip #11: Develop a Business Continuity Plan.

Are there Risk Management Standards?
Several Risk Management Standards have been developed worldwide to help organizations establish a common view on risk frameworks, processes and practice.

This is just a sample list of the most common Risk Standards:

  • ISO 31000 – Risk Management Principles and Guidelines
  • ISO/IEC 31010- Risk Management – Risk Assessment Techniques
  • COSO 2004 – Enterprise Risk Management – Integrated Framework
  • OCEG “Red Book” 2.0: 2009 – a Governance, Risk and Compliance Capability Model

By the way, you might want (strongly suggested) to google M_o_R. Take my word on it, please.

 

In Conclusion
A Business Strategy is something that needs to be supported by a whole set of Strategic Planning activities in also any business process/ activity area. And like everything you plan, you need to enable its execution and you need to monitor its success. Define and use KPIs wisely.

Avoid relaxing & letting your guards down because you got indeed a great strategy. Xerox had a great strategy which made them the worldwide dominant company on photocopiers, but they did not adjust it when that little camera company entered their space; now Canon dominates the photocopier market.

Does anyone even remember that huge and grant company called Ashton-Tate, the developers of dBase? In the 80s & 90s, all database development and administration jobs in every part of the World, were demanding dBase skills… Don’t let this happen to your organization too.

So, all your Strategies along with Strategic Planning and Execution activities, should be in a constant cycle or re-evaluation, monitoring and improvement and add value to your organization.

 

Thank you,

Spiros

About the Author: Spiros Tsaltas, a Top-Tier PR Management Consultant and a former University Professor (RSM MBA, CUNY, etc), Spiros has hands-on experience on setting up all sorts of Startups both in the US and in Europe. He is an active transformational leader and strategist with extensive experience on Boards of Advisors & Boards of Directors. He is currently assisting a couple of Ghanaian companies with the setup of their Boards.

© 2018 Spiros Tsaltas and  © 2018 HireLoyalty