How to manage risk upside and downside. What are the risks in a start up business? Steps to take to manage your business risk.

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 This is why we like to build high-growth businesses! $ time

5. recruitment costs are higher than expected

6. margins are lower than expected

7. compliance costs are higher than expected

8. etc$ time

10. Product completion is late

11. Key team members have to be replaced

12. etc$ time All too often, the extra time and extra cash required is too much, and the company flatlines… (below breakeven!)

13. Typical Risk Profile Global company distributes our product Government project gives a sudden sales lift Partner found to share dev costs $ time Key developer leaves project Competitor sues us for infringing IP Product fails key Beta test

14. Extreme bootstrap risk profile: 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 $ time 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

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

16. 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)

17. Most young companies which survive do so by weathering the storms of adversity which sweep over their unprepared businesses

18. 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!

19. 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.

20. Sample of downside risk factors

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