One of the important aspects that startups have to understand is the risk associated with their business.
These risks vary according to the nature of the business and also the project’s phase, therefore it is not recommended to rely on previous studies – even for similar models – and reflect them on the existing project. We will discuss some of these risks and how startups can control them, in order to avoid any potential failure of your business model.
Startups are highly vulnerable to such risk due to the fact that they can’t pay competitive salaries comparing to the market.A business owner can minimize this risk by being always ready to immediately replace any employee with an equally-qualified one.
The replacement process can be achieved by creating a database of qualified candidates for each position. Moreover, it is recommended to implement rotation policy for each team member to ensure the availability of urgent backup for any vacant position until hiring the right replacement.
Most of the startups are focusing on creative ideas to help them penetrate the market in easier and faster fashions, however, many competitors will come to the market after the succession of the idea. In some cases, newcomers come along with aggressive competition right from the start of their businesses, which could hamper the newborn company’s early progress. Every business owner should have a solid development plan for his business. He/she should always conduct research based on the market needs, competition climate and client’s experience.
It is important to listen to the clients especially those with negative feedback, in order to overcome future deficiencies.
High revenues or large contracts sometime mislead business owners and don’t reflect the right picture about cash management of the project.
Generating profit doesn’t always mean that the business is financially stable.
A business owner has to understand the cash cycle of the project to avoid any expected deficit, which can lead to failing to fulfill business obligations such as salaries, rents, suppliers’ invoices in a punctual manner.
Therefore, it is required to prepare annual cash flow analysis which has all receivables along with the settlement time, in order to be able to manage any shortage in specific months caused by the difference between collection and payment times.
Startups usually face this risk when their products or services’ quality decline for any given reasons.
However, business owners need to pay attention to two main reasons that might cause decline in the quality; hiring unqualified staff and accepting commissions beyond their capacity.
It is mandatory to train each staff member, as it is highly recommended to commit to the existing capacity to ensure delivering with high quality and maintain good reputation in the market.
The regulations related to the business are changing from time to time depending on the economic situation or governments’ visions.
Startups’ owners should always be updated about any regulatory changes and their effective dates of implementation.
Failing to comply with these changes might impose additional charges that will affect the continuity of the business.
(Written by Fadi Alawami, Regional Manager, Gulf Finance, Saudi Arabia // forbesmiddleeast.com)