One of the most exciting decisions a person can make is starting a business, but with this opportunity comes an undeniable fact: risk is involved. The challenges are real, from running out of cash to miscalculating market demand. Well the good news is that it ain't rocket science to understand how entrepreneurs can decrease risk. If done right, and with a little discipline, you can protect yourself fairly well before things have turned away for the worst. This article unpack five actionable, proven strategies for lowering startup risk without stifling your momentum.
Why Startup Risk Management Matters More Than Ever
Everybody knows that startups do not succeed. What most fail to realize is the predictability of those failures: lack of funds, a product that doesn't solve for what the market is looking for, competition, and in some cases burnout by founders. These are not random events. They run in patterns that clever founders learn to recognize and duck early.
Successful entrepreneurs are not those who avoided being scared, they are the ones who managed startup risk management effectively since day one. And the great part? You can do the same.
5 Proven Ways to Lower Startup Risk
1. Sell Before You Build
Making money before you spend truckloads of cash on developing a product is one of the quickest ways to minimize your financial risk as an entrepreneur. This may seem silly, but it works.
People are willing to pay accordingly for anything that touches their pain points immediately, whether your product is ready or not. Firstly, provide your idea as a service. Manually solve the problem while learning precisely what do customers want. It generates some quick cash, establishes early credibility, and provides you with real data before investing in technology.
Third, it provides you deferrals on your largest expenses. You will stretch your product development dollars much further if you know exactly what to build and you only know that after listening closely to actual paying customers.
2. Match Your Skills to Your Business Model
One often forgotten approach to entrepreneurship risk management is to select a model that best aligns with what you already know how to do.
When your skill set matches the product or service, you can test ideas quickly, iterate using in-house skills and save time and money those months where you were working to make money, not lose it. Basecamp, Mailchimp and similar companies were not born as scalable platforms. It started with service businesses, leveraging existing skill sets to address actual needs, calibrating what customers wanted and then encapsulating that in tech.
If you're going into a space where the skills needed aren't within your repertoire, bring in a co-founder that is rather than trying to fill the gap by hiring when you can barely afford it.
3. Keep a Stable Income While You Build
It sounds badass to quit on day one but often, that is one of the biggest mistakes a new founder can make. Having a regular stream of income to pay at least bills, even half-time work, allows for breathing space. If the rent on your flat isn't riding on this month's takings, you're less likely to be pushed into a bad partnership or taking shortcuts.
How to avoid wasting time: decide a revenue number for your business, multiply by at least 3 months, and say that is the number you need before transitioning full-time. This challenges the reliability of your income model and provides you empirical evidence (as opposed to hope) from which to make an informed decision.
In the meantime, simply have freelancers or part time remote workers doing anything that doesn't require your one to one interaction. This minimizes overhead while allowing you to focus on the tasks only you can handle.
4. Learn From People Who've Done It
Mentorship is one of the most underutilized tools in startup risk reduction. A mentor has already made the mistakes you are about to do. Their advice is not only inspirational, but also a way to circumvent expensive detours.
Mentored entrepreneurs generally experience substantially higher revenue growth versus solo founders, research consistently indicate. You can benefit from this without a formal arrangement. Conduct interviews with successful founders in your industry. And most experts welcome the opportunity to share perspective, when people take a genuine interest and demonstrate respect for what they've created.
Working with entrepreneurship-related communities (events, networking groups, local accelerators) also opens a broader support network for you. Accountability from others AND the exposure to different frameworks around which you can assess/refine your own decisions ultimately improves it over time.
5. Cut Unnecessary Expenses Early
One of the high frequencies at which founders unconsciously raise this exposure is unnecessary expenditure. Office leases, early hires, untested advertising spend and early debt can quietly create pressure on an opportunity without a solid foundation yet. The best startup cost-reduction strategies are often the ones that people can easily overlook.
Work from home / coworking space. Build one product before diversifying. Try a handful of marketing channels at lower budgets before scaling up. Saving even one unnecessary dollar is a dollar you can use to find out what really works longer.
How to Decrease Risk as an Entrepreneur: A Quick Summary
- Confirm with sales prior to committing the resources to complete product development
- Use your skills to limit dependence on outside help
- Maintain an income stream during building and be prepared to draw a line in the sand before going all in
- Look for mentors and communities that shorten your learning curve
- Keep it lean, develop one product at a time and spend only on things that are absolutely necessary
Final Thoughts
Entrepreneurship will always involve some level of risk, it's just the nature of building something that didn't exist before. But to really know how entrepreneurs can reduce risk and gain an advantage over other businesses who view every decision as a blind leap of faith.
And the founders that live to fight another day aren't oftentimes the biggest betters. More often, they're the ones who managed startup risk carefully, listened to customers early, and kept expenses in check long enough to find something that actually worked.
You cannot just remove risk from the business equation. It is just that you have to handle it better than the average person does. Start there.
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