How to manage risk in your startup business. Entrepreneurship skills you will need.

1. MANAGING RISK
High-Growth Entrepreneurship

2. Three points to consider:
• Managing risk is at least as critical to success as is
the core plan
(This stuff matters)
• Most new entrepreneurs do not manage risk… they
gamble on success
(Most people do it badly)
• There are simple ways to incorporate managing risk
into your plan
(It’s easy to do it well)

3. The Revenue J Curve
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
This is why we like to build high-growth
businesses!
$
time

4. The growth curve we expect, with
costs
$
time
We know there will be extra costs:
 technology has to be reworked
 recruitment costs are higher than expected
 margins are lower than expected
 compliance costs are higher than
expected
 etc

5. The growth curve we get
$
time
It just takes longer!
 Sales take longer to close
 Product completion is late
 Key team members have to be replaced
 etc
All too often, the extra time and extra cash required is
too much, and the company flatlines… (below
breakeven!)

6. Typical Risk Profile
$
time

7. Extreme bootstrap risk profile:
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time
Early risk is very low because cash outflow and activity are minimal
Future risk is much higher because you don’t have the resources to:
-Thoroughly scope the market opportunity
-Understand competitors
-Modify dysfunctional founder behaviours
-Ensure product is optimally designed
- Get to market quickly
-Etc
Bootstrapping defers risk, and
often increases it in the long run
Many bootstrapped start-ups ‘fade-away’ as
they get to the risky stage because they
have no capability to manage that risk

8. Managing risk is at least as important
as core strategy
Core
strategy
Move the risk curve as
high as possible
time
$

9. Most entrepreneurs don’t manage risk
well
• We know this because:
• Many young companies fail because of bad
events they could have prepared for, but didn’t;
and
• few young companies ‘get lucky’ (upside
preparedness); and
• few young companies achieve their profitability
forecasts (core strategy)

10. MOST YOUNG COMPANIES WHICH
SURVIVE DO SO BY WEATHERING THE
STORMS OF ADVERSITY WHICH
SWEEP OVER THEIR UNPREPARED
BUSINESSES

11. Risk is variability in outcome
• The goal:
• Take out, or minimize all downside risk factors
• Enhance the likelihood of upside risk events
occurring
• The Process:
• Create your business plan
• Analyse the plan’s risk factors (implied or stated)
• Develop strategies to mitigate downside risk, and
enhance upside events
• Add the new strategies to the plan!

12. Decide how active you need to be in
managing each risk factor
• Determine probability of occurrence and
potential impact.
• If both are high, then detailed risk planning is
required.
• Otherwise, broad-brush plans may suffice.
• Remember:
• If you could manage out all downside risk factors, you
would automatically succeed in building your
business…
• you can’t… so manage in some upside risk as well, to
maximise your likelihood of success.

13. Sample of downside risk factors
Product Risk Probability Impact
•The technology doesn’t functionally perform as expected
•Product development is late
•Core technology becomes obsolescent
•Product failure rates are too high
Financial Risk Probability Impact
•It takes longer to raise funds than expected
•Operational cash burn is higher than budgeted
•Revenues stay too long in receivables
•Core technology prices increase
Market Risk Probability Impact
•Competitors release superior or earlier product
•Competitors gain control of the target customers
•Competitors claim IP infringement
Operational Risk Probability Impact
•Key staff leave
•Product delivery dates are missed
•IT systems fail

14. Three points we considered:
• Managing risk is at least as critical to success as is the core
plan.
(Success is heavily influenced by how we manage risk)
• Most new entrepreneurs do not manage risk… they gamble
on success.
(Most ‘risk mitigation strategies’ are really just comments
in a plan)
• There are simple ways to incorporate managing risk into your
plan.
(Work out what risks are important to manage, and plan
as comprehensively for them as you do for your core
strategy)

15. Managing risk turns you from a
gambler to an entrepreneur
http://www.becominganentrepreneur.biz
Dr. Norman Evans
Author: Becoming an Entrepreneur