A founder’s capability to build and sustain a successful company depends on their capacity to navigate the numerous risks and variables that define entrepreneurship. Your ability to manage risk also provides potential investors with significant insight into who you are as a business owner. For instance, those that demonstrate high-level risk-management skills are more likely to obtain funding from knowledgeable investors.
Planning and preparedness are key to the longevity of any business. If you want to maintain steady growth, increase profitability, and attract rewarding partners, this planning must address the five most common risks in the business sphere.
1. Founder Risk
Founder risk is associated with the people who start the company, how well they get along with each other, and how they will work together to sustain the business. In the early stages of starting a business, its survival is dependent on the founders’ ability to remain resilient and navigate mishaps in the most productive way possible.
When your company is in its infancy, founder risk may appear in disagreements about the direction of the business, the loss or resignation of a key founding member, or the consequences of working with unqualified leadership. It is of the utmost importance that you choose co-founders with complementary skills, a unified vision, and commitment to your venture. To help manage this risk, consider creating a written founders’ agreement to reduce conflict and define each co-founder’s level of ownership and responsibility.
2. Product Risk
The term “product risk” refers to issues that may occur if your team members produce an ineffective or unneeded product or service. As your company expands, ensure that you measure product risks early on. Often, you can mitigate the effects of product risk with rigorous testing.
There are several ways to categorize product risk, but they are generally described as functional or non-functional. Functional risks mean that the product or service does not achieve the activities it’s designed to do, while non-functional risks mean that the product is unreliable or inefficient.
Companies can manage product risk through continual research and development. Effective product risk management requires the identification of the ways in which a product is most likely to fail and minimizing or eradicating these flaws to best meet the needs of your target audience.
3. Market Risk
Market risk, also referred to as systematic risk, refers to the inherent unpredictability of every investment decision. This form of risk arises due to events that are entirely out of the business owner’s control. There are four types of market risk, including the following:
- Interest rate risk is defined by uncertainty due to the constant change in interest rates.
- Commodity risks are market changes due to the price fluctuations of a specific commodity. The commodity price is affected by events such as technological advancements, seasons, politics, and the overall condition of the current market.
- Currency risk is the inherent risk that comes with currency exchange rates. Global companies are most likely to struggle with this risk factor, but currency risk can also affect small companies.
- Country risk refers to changes within a nation that can impact businesses, which includes climate change and social or political turmoil.
As a business owner, there will always be variables that are completely out of your control. Entrepreneurs must account for these uncertainties and uncontrollable risk factors before they begin to affect profitability and internal operations. With a cohesive strategy, combined with the assistance of qualified mentors and experienced investors, business owners can react strategically to thrive amid an unpredictable market.
4. Competition Risk
Competition risk, also called competitive risk, can easily lead to the demise of a company if founders do not understand how to navigate these challenges. This form of risk can come from several different sources, but for businesses to handle competitive risk, they need to establish a loyal following of customers.
Competitive risk differs from other forms of risk because it can come from your rivals or even from within your own organization. A vital component of managing competitive risk is to ensure that competition doesn’t arise from people within your company, which could occur when employees leave the company and share details about clients or trade secrets. To avoid the perils of competition risk, have your employees sign a non-compete agreement, which ensures that employees do not give away valuable information to competitors.
5. Sales Execution Risk
The uncertainty that can occur throughout the sales process is referred to as sales risk. These issues may arise from ineffective sales tactics, product instability, and poor customer satisfaction. Businesses must learn to manage sales risks early on because failing to navigate these risks effectively can negatively impact the amount of money that your sales team can bring in over time.
The best way to manage sales risk is by establishing a cohesive strategy to assess customer needs regularly and update your offerings to reflect them. In addition, you should ensure that your sales team makes a continuous effort to meet their sales quota by being proactive about their methods and performance management.
Knowledgeable Investors Can Help You Manage Risks
With the assistance of investors, founders can navigate the many risks of running a business much more effectively. Investors put their capital towards your company’s success, and if your company fails, they lose money — so they have a vested interest in helping you flourish.
Fortunately, these investors often bring great benefits to the table. Many experienced venture capitalists have access to business connections that you may not have otherwise been capable of contacting. For instance, if a highly-skilled co-founder resigns from their position, investors may know someone who can fulfill the role. Or, if your business is struggling to manage a certain type of risk, your investment partners may have a wealth of advice to help you find the right way forward.
Managing risks seamlessly is a vital component of success as a business owner. If you’re seeking funding and resources to improve your risk management strategy, venture capitalists are here to support your efforts.
Is your business prepared to expand? Consider contacting Fahad Alrajhi Group. Fahad Alrajhi Group seeks to endorse a culture of entrepreneurship and invest in business ideas that radically impact society while diversifying regional economies. So if you have an exciting business in alignment with our values, contact us today to find out how we can help make your vision a reality.