Why Risk Management Gets Overlooked in Startups - And What Happens When It's Ignored In the whirlwind of startup life, where innovation and growth often dictate the pace, risk management tends to take a backseat.

By Janthana Kaenprakhamroy Edited by Patricia Cullen

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Tapoly
Janthana Kaenprakhamroy, founder, Tapoly

The sheer excitement of building something new, coupled with the pressure to scale quickly, can make the idea of preparing for setbacks feel like an unnecessary distraction. But as countless entrepreneurs have learned the hard way, neglecting risk management can have serious repercussions - not just for their ventures but for their personal credibility and resilience as leaders, too.

Why risk management gets sidelined
Startups live and breathe urgency. Whether it's racing to bring a product to market, securing funding, or capturing early adopters, the focus is squarely on momentum. Anything that doesn't immediately contribute to growth, like risk assessments, can be seen as a luxury rather than a necessity.

There's also a certain mindset that many founders share: an unrelenting optimism. It's what drives them to push boundaries and take bold risks, but it's also what can make them dismiss potential pitfalls. "We'll deal with it if it happens" becomes a common refrain, but this reactive approach can leave startups scrambling when challenges inevitably arise.

The real-world costs of ignoring risks
When businesses overlook risk management, the consequences often snowball. Here's what often happens:

  1. Financial turbulence: Rapid scaling without a solid financial contingency plan can lead to significant setbacks when unexpected funding gaps arise. Businesses might have to halt key projects, reduce workforce numbers, or urgently seek emergency financing. These financial disruptions can jeopardise both short-term goals and long-term sustainability.
  2. Operational shocks: Overdependence on key personnel without proper documentation or knowledge transfer can severely impact operations. If a critical team member departs unexpectedly, it can result in months of delays, missed deadlines, and a breakdown in client delivery, all of which can harm customer relationships and revenue streams.
  3. Legal and compliance oversights: Expanding into new territories or markets without understanding regulatory requirements can lead to costly fines and legal challenges. Failing to comply with local laws not only risks financial penalties but can also damage the organisation's reputation, making it harder to attract partners or investors.
  4. Reputational fallout: Weak cybersecurity measures increase vulnerability to data breaches. Such incidents erode customer trust, incur high costs for remediation, and often result in losing clients to competitors with stronger security measures. A tarnished reputation can take years to rebuild, directly impacting growth opportunities and market perception.

Lessons from experience
The truth is, no startup is immune to risks. But those that navigate challenges successfully often have a few key practices in common. Take, for example, startups that survived the COVID-19 pandemic. The ones that thrived were those with contingency plans in place, whether that meant pivoting to new revenue streams, embracing remote work, or quickly securing emergency funding.

In contrast, startups without risk management frameworks found themselves overwhelmed. Many were forced to halt operations, not because their ideas weren't good, but because they couldn't adapt to unforeseen circumstances.

Simple steps to start managing risks
Risk management doesn't have to be overwhelming, especially for resource-constrained startups. Here are a few practical steps to get started:

  1. Take notice of weak spots: Take an honest look at your business. Identify areas of vulnerability that could impact your operations or growth. For instance, ask yourself questions like: Are there gaps in our financial planning? Do we rely heavily on a single supplier or team member? Recognising these weak spots is the first step to proactively addressing them.
  2. Plan for the unexpected: You don't need an exhaustive playbook, but basic contingency plans are crucial. Create an emergency fund to cushion financial shortfalls and establish protocols for crises such as staff shortages, supplier disruptions, or market changes. For example, have a backup plan for maintaining operations if key personnel leave suddenly or a critical system goes down.
  3. Build a resilient culture: Risk management isn't just about creating processes; it's about fostering a mindset. Encourage your team to think ahead, anticipate challenges, and voice concerns without fear. By embedding risk awareness into everyday operations, you empower your team to be proactive rather than reactive.
  4. Leverage tools and expertise: Technology and expert advice can help identify and mitigate risks effectively. For instance, use cybersecurity tools to protect sensitive data, financial software to track cash flow, or compliance management platforms to stay on top of regulations. Consulting with specialists, such as legal advisors or insurance brokers, can further safeguard your business.
  5. Anticipate funding challenges: Financial stability is a cornerstone of risk management. Develop detailed financial models that account for best-case and worst-case scenarios. Understand investor expectations and prepare for prolonged negotiations by securing bridge financing or creating alternative revenue streams to maintain liquidity.
  6. Stay agile: Risks evolve as businesses grow. Regularly revisit and refine your risk management strategies to adapt to new challenges and opportunities. For example, if you expand into new markets, update your compliance measures to reflect local regulations. Staying agile ensures that your business remains prepared for change.

The role of leadership
Founders set the tone for how a company approaches risk. With a regulatory background as a former internal director at investment banks and now serving as the CEO of Tapoly - an insurtech platform providing insurance solutions for businesses and freelancers - I've seen firsthand the importance of embedding risk management into a company's DNA. By implementing regular risk assessment reviews and ensuring our leadership team was equipped to handle uncertainties like funding challenges or regulatory shifts, we safeguarded our operations and growth trajectory. Prioritising risk management demonstrates to teams and stakeholders that leadership is committed to building a sustainable and resilient business. This approach emphasises strategic foresight - not about being overly cautious or stifling creativity but about protecting what you're building so it has the best chance to succeed.

Risk management may not be the most glamorous part of entrepreneurship, but it's one of the most essential. It's about taking calculated risks, being informed about what can go wrong, and having contingency plans to deal with those risks. Startups that take the time to plan for potential setbacks are better equipped to weather storms and seize opportunities. In the end, the goal isn't to avoid risks entirely - it's to navigate them wisely, ensuring that your startup's journey is as resilient as it is ambitious.

Janthana Kaenprakhamroy

CEO and founder, Tapoly

Janthana was listed by Forbes as number 6 of the Top 100 Women Founders to watch, and among the Top Ten Insurtech Female Influencers according to The Insurance Institute. Recently she has been named as one of the Most Influential Women in Tech 2023 and as the winner of Insurance Leader of the Year by Women In Finance Awards 2021. She was a former chartered accountant and internal audit director at investment banks, having previously worked at UBS, Deutsche Bank, JPMorgan, and BNP Paribas.

 

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