Risk management for scaling startups (and how to do it)

Philippe-Petit-MAN-ON-WIREI ran a business planning workshop the other month with a group of early-stage businesses, all high flying brands with six figure revenues. I asked the group a simple question: “who here identifies, understands and manages risk within their business?” I was met with laughter. The answer was of course, no one. Startups and early-stage businesses don’t really do risk management. But managing risk within a business is essential because, as the saying goes, “shit happens”.

Here are a few common themes that I have observed about the consideration of risk in startups and early-stage businesses.

  • Risk management as a concept is more often than not simply not known about or understood. Risk management is absent because of ignorance rather than laziness. This is a good thing because it is very easy to learn and implement
  • Acknowledgement of risk is considered pessimistic and against the grain of a positive entrepreneurial attitude
  • There is just not enough time to think about risk, and anyway, what’s the point in planning for something that might not happen?

In response to these points:

  • I am yet to come across one successful, well managed business that does not manage both strategic and execution-related risks well and treat it as a core business discipline.
  • Shit does indeed happen. Keeping on top of risks means you can work proactively to avoid the risks materialising in the first place. However, should things go wrong, you are not caught with your pants completely down so to speak.
  • All businesses carry risks and any sophisticated investor (bank, angel, VC or otherwise) knows this. Demonstrating to such people that you understand risk (and how to manage it) will be considered a sign of significant strength, not weakness.

You can begin to manage risk in your business quite simply by first at least understanding it. Here’s how to make a start:

  • Schedule in a working lunch with your senior management team (or whole team depending on the size of your business)
  • Make it clear that attendance is expected
  • Have a whiteboard or flipchart ready and nominate a scribe – you can use it as a development opportunity for a less experienced team member
  • Facilitate an open conversation about all the things that could go wrong in your business and ask the scribe to capture them
  • Review the long list as a group and, amongst the group distill it down into a short list of your top 5 risks
  • For your top 5 risks, complete the table below: Risk Management

You have (started) to manage risk in your business. Be aware though that risk management only really works well if it is directed by the CEO and senior team and is developed culturally throughout a business.

Also be aware that any effective Board will want to be updated on risk and it’s the CEO’s job to do that. As you would too if it was your money at stake, investors want to know that all eventualities are covered when it comes to managing their hard-earned investment.

2 thoughts on “Risk management for scaling startups (and how to do it)

  1. dmilbauer

    Surprised to see that I am the first to comment. I was even more surprised by the group response that no one in your group identifies or manages risk. As a serial entrepreneur risk is the bulk of what I think about – strategic risk, operational risk, competitive risk. I just found it incredulous that few others do. I do like your process and chart for risk identification and handling though. For anyone not currently dealing with risk management, it makes it simple to understand. Thanks.

  2. Richard Hughes-Jones

    Thanks Doug. In commenting you have touched on the content I was considering for a follow up post… how to break risk down and categorize it!
    I am now far less surprised than I used to be when businesses tell me that they have no understanding of risk or processes for managing it.
    What I find even more interesting is that for start-ups and early stage businesses that want to grow through equity-based investment (i.e. angel, VC etc), it is risk that will be at the top of any sophisticated investors agenda so it’s even more important to get a handle on it. Risk management, done well, is a form of competitive advantage.

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