-By Akira Hiral

Akira Hiral has done A.B.in Engineering Sciences at Harvard University. He had worked as an Software engineer, sales manager and was in management consulting firm.
And then he started his own 2 technology companies at the time of dot com bubble. Akira Hiral is the founder and CEO of Cayenne Consulting, a firm that helps the upcoming Entrepreneurs regarding funds, business plans, financial forecasts and pitch decks.

This is the only main thing that we entrepreneur should think of. What are the drawbacks that lead to closed down the firms. As we all know the basic statistics that first 1000 days an entrepreneur should not expect Profit and these are the days when a firm may come to an end either by bankruptcies or by entering new firm in the market. For that we have to identify and mitigate the risk that can help us to beat this odd.

Category

2003

2004

2005

2006

2007

New Firms

612,296

628,917

644,122

640,800

637,100

Closures

540,658

541,047

565,745

587,800

560,300

Bankruptcies

35,037

34,317

39,201

19,695

28,322

Risks exists in any situation where there is a possibility of an outcome that we would rather avoid. Risk surrounds US sinking stock prices, frozen credit market and so on. The second side of risks is Opportunity. The greater the potential upside the greater the risks is involved.

Risk Management is an art & science of thinking about what could go wrong and what should be done to mitigate those risks in a cost effective manner.

There are mainly 2 dimensions of risks.

Likelihood of occurrences Severity of the potential consequences

These 2 dimensions form four quadrants, which helps in how to mitigate the those risks.

B A
Minor Consequences Risks that can be safely ignored Risks that can be mitigated through simple changes in the behavior

C
Major Consequences Risks that can be mitigated through insurance Low Likelihood

D
Risks to actively identify, monitor and mitigate. High Likelihood

Cost effectiveness is an important consideration in deciding how we face up to risks.

Little things that often seem to go wrong, but whose impacts are easy enough to minimize through straightforward changes in behavior. Example: The printer runs out of toner while you are preparing the proposal for the customer meeting that starts in 30 minutes. Solution : Dont wait until the last minute, and always keep an extra toner on hand.

Risks that could have major consequences but are relatively unlikely to happen are often insurable.

insurance Is the practice of spreading the cost of an improbable loss across a group. So that no individual bears the entire cost of a disaster. Example:

Property & casualty insurance can mitigate losses from fire, theft, and natural disaster Key Executive insurance can mitigate losses from the death or incapacitation of a management team member Liability insurance can mitigate lawsuits resulting from product defects or on-site injuries to visitors. Directors & officers insurance can mitigate lawsuits in cases of negligence , harassment, or discrimination.

The risk with both a relatively high likelihood of occurrence and major consequences. The survival of the venture depends on the ability to identify and mitigate the company killer. Individually these risks may seem manageable but collectively they represent a true challenge for any entrepreneur.

Example:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

There's a 90% chance that you have identified a genuine market need. Theres a 90 % chance that your addressable market is as big as you think it is. Theres a 90% chance that you can actually implement your innovation. Theres a 90% chance that you can figure out how to sell for more than it costs you to make it. Theres a 90% chance that you have assembled the right management team to do the job. Theres a 90% chance that you manage to stay one step ahead of the competition. Theres a 90% chance that you dont get sued into bankruptcy. Theres a 90% chance that you wont get buried in regulatory red tape. Theres a 90% chance that you dont run out of money Theres a 90% chance that nothing else go wrong.

Risk management is all about identifying & Mitigating the uncertainties especially the company killers that surrounds cash flow. Company killers are of following categories:

Market Risks Competitive Risks Technology & Operational Risks Financial Risks People Risks Legal & Regulatory Risks Systematic Rules

It refers to whether or not there is sufficient demand for what you have to offer at the price you set. Fortune 500 companies spend billions on market research and every year they introduce products that are an instant flop. There is no easy way to know how the market will receive any new product . One way for entrepreneurs to mitigate risks is to avoid perfection.

Every venture has more competitors & fewer competitive advantages. Business is a contract sport and some of the competitors will play rough.

They will copy your business model. They will try to out innovate you. They will try to out innovate you. They will try to out spend you on marketing. They will start price wars They will start rumors about your product. They will try to do an end-run around your patents. They will try to steal your trade secrets. They will try to poach your best people.

S.W.O.T. analysis is not a business school exercise, it should also be implemented in the business. To figure out how an entrepreneur can be better from others, in price, features, quality, and focusing on maintaining the leadership in that category.

 Technology

& Operational Risks broadly cover everything having to do with execution:

Can your team finalize the product design on a limited R&D budget? Will your product work as an intended? Can you find reliable vendors? Can you manufacture it? Can you optimize the logistics of product distribution? Do you have a backup plan to keep your company running when an accident destroys some key equipment in your data center?

When it comes to execution , there's no substitute for experience. Its all about careful planning & watchful management by people who know what they have doing. Mistakes are inevitable, we all learn from our mistakes and become better over time. To avoid mistakes and instead of learning from mistakes ,find someone who have succeeded in the past. Entrepreneurs with a track record of success have a much higher probability of future success then first time entrepreneurs.(Gompers, Kovner, Lerner)

For startups, the biggest problem is Finance. Many entrepreneurs fail because they make the mistake of betting everything on being able to secure outside financing. If you are an rookie entrepreneur, the odds of finding an investor willing to take a huge risk on you are slim. Should have 2 separate business plans: 1).Growing the business ; 2).Bootstrapping the business

After raising finance the next step is generating Revenue. One easy way to mitigate financial risks and other risks is to take funding when its available and keeping it in reserve for a day when it requires.

People are the most crucial and least predictable element of any business. The right combination of Experience, Contacts can increase a ventures odds of success. Failure to recruit, motivate, and retain the right partners can spell doom. There should a structure in the team work, by managing egos, disagreements and mediate personality. Dont let personal relationships cloud your judgement.

There are 2 steps to mitigate Legal & Regulatory Risks:

learn about the subject

Retain the right attorneys

List of possible problems: -Tax complications -Poor structured agreements -Lawsuit filed by a competitor

Systematic Risks are the risks that threaten the viability of entire market, not a single firm within a market. Examples:

Credit default swaps Rising default rates in the subprime mortgage market. Availability of low cost skilled labor. Increase in the cost of fuel

Creating a pragmatic risk management plan is straightforward in concept, if not in execution. Prepare a table with 7 columns..

Risk factor Type Likelihood Consequences Mitigation Tactics Mitigation Costs

Status

Pragmatic risk management isnt about mitigating risk is about..

Engaging common sense to recognize and mitigate the most

obvious risks in cost effective manner;

Developing a culture of responding to unanticipated

developments that is putting out fires in a calm rational way.

Dont let a risk paralyze you. Entrepreneurs are by definition risk takers.

Strong risk management is an important source of competitive advantage.

Entrepreneurs(WE) can beat the odds and can build a thriving and rewarding venture by learning to recognize and mitigate risks.