A Blog on managing risk in the Technology Sector

Managing Risk in the Tech Sector


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Avoiding Your Start-up’s Funeral by Better Managing Risk

Entrepreneurs by definition embrace risk and for any new start-up, the odds are stacked against you, going in. According to a 2012 study by Shikhar Ghosh, a senior lecturer at Harvard Business School about 75% of venture-backed firms in the U.S. don’t return investors’ capital.

However, in spite of the statistics, Entrepreneurialism is alive and well. Those who succeed and succeed well, do it, partly through a keen awareness and management of the risks, they embrace. In order to increase your odds of start-up success, your approach to risk management should be methodical and considered.

There are many ways in which risks are categorized and sub-categorized but boiled down; all risks have two key components: the assessed likelihood of the risk materializing and the assessed impact of those potential consequences on the business and its success in achieving its stated objectives.

 

High Likelihood

Low Impact

High Likelihood

High Impact

Low Likelihood

Low Impact

Low Likelihood

High Impact

Once you are able to map the risks into the appropriate quadrant, you will be able to effectively decide how to respond to each risk with your limited time, focus and resources.

For example, many of the risks falling into the low likelihood/ high impact quadrant are transferable to another party through insurance. These could include: litigation risks, the death or incapacitation of a management team member, the loss of your physical assets from fire or theft or the insolvency of a major debtor.

For those in the low likelihood/ low impact quadrant you are unlikely to expend any meaningful resources or time over.

For those risks you’ve identified as high likelihood/ low impact, the challenge will be to identify solutions or seek changes in behavior to reduce likelihood of the risk arising or reducing its impact further should the risk arise. These risks will have a negative impact operationally but are unlikely to sink the boat.

Those risks in the high likelihood/ high impact quadrant are oftentimes the killers for many start-ups whether it comes from insufficient demand for your product or service, burning through too much cash, falling foul of regulatory bodies, a failure to recruit, motivate and retain qualified staff, being out-spent on marketing by your competitors – the list goes on.

The practice of identifying, assessing and responding to risks is what many entrepreneurs, simply regard as ‘doing business’. However integrating a risk management framework into your business planning in a tailored and non-bureaucratic way, will go some way, to ensure you are not taking on unnecessary risk, pursuing the right strategies and focussing your time and energies on the right things.