Tag: startups

Starting a business is not easy. 90% of the startups fail. Though there are a number of risks associated with a business, some risks are more common in the early days of a startup. Mitigating these risks can lead to a higher probability of the startup surviving.

Market risk

When you build a product, what essentially means is that you are solving a pain point for your segment of the market. For this, you need to know your customers and the market in depth. What is the use of building a product that no one wants?

Hence knowing your customers in-depth, their spending pattern, their needs, and the influencers in your customer segment is an important study to do before entering the market.

Achieving the product-market fit is crucial to overcome this market risk.

Financial risk

Capital is the lifeline of any business. For new startups, where the capital available is limited, the risk associated with the drying up of the capital is high. Startups have to create well-articulated business plans with realistic financial milestones. There should be clear timelines with financial milestones of when the company would need more capital, and when would it be profitable.

In the initial days, startups often go into negative cashflows. If this negative cash flow cycle stays for a very large amount of time, there is a risk of bankruptcy. When startups are relying too much on external funding, there is a risk involved when the funding dries up or investors back off. Similarly, financial risk can emerge from relying on limited customers or product lines. Diversification of customer types and product lines is a good way to mitigate it.

Team risk

Early-stage startups have limited resources. Hence it is important to make the best out of the limited resources available. In the initial days of a startup, the team is everything. Other than any other factor, it is only the founding team that matters the most. Products can change, markets can change, and strategies can change, but only if the founding team is strong and consistent enough to make anything for the survival of the company. A founding team with the right and complementary skills, ruthless execution, and high consistency & motivation is the key to success. In fact, investors bet on the founders, than the product in the early stages of a startup.

Lack of complementary skills, lack of communication between the founding team, and cultural misfit possess a risk of failure in the early stages of a startup.

Execution risk

Everything boils down to execution. What is a great product idea without execution? Execution risks are the challenges involved in implementing the vision of the startup.

Technical difficulties during product development might pose a risk of failure with delays in the release of the product. A startup’s reputation is highly risked if the customers using the product are not satisfied because of quality issues, and a lack of good customer support. Entering the market too early or too late can be a risk factor resulting in failure. Lack of adoption with respect to the changes in the markets can lead to detrimental effects on the startup. In case the product does not work, a lack of pivoting can lead to the startup failure.