21. Risks


Life is full of risks, and so are startup companies.

What could go wrong in your plan? What stated or unstated assumptions might be wrong? How might your competitors adapt to your launch and eliminate your window of opportunity?

To paraphrase Helmuth Graf von Moltke’s famous military quote: “No business plan survives first contact with a customer.” Or in other words, some of your assumptions are wrong, some of your decisions are wrong, and part of your plan is wrong. Which parts are right and which parts wrong are unknown. Nonetheless, to paraphrase another famous quote (this time from Winston Churchill), “If you fail to plan, you plan to fail.”

To get around the unknowns, take the time to think about the various risks within your plan and, as best you can, incorporate that knowledge back into the plan.

What are the risks of failure? What might go wrong? Which of my assumptions might be wrong?

For example, there are risks in your financial plan: Can you get the product ready for market on the specific month listed in the plan? Will you really sign the first customer in that specified month? Will you receive payment from that customer in the expected timeframe?

All businesses have these risks. So, to offset these risks, create a version of the financial plan with an extra month (or two or three) accounting for these delays. Fundraise and hire based on those numbers.

Similarly, no matter how conservative your estimated revenues may feel, there is a risk they are too high. Create a version of the financial plan with half of the expected revenues (either halve the number of expected customers or halve the price or a combination), and consider what changes you would make if that were to occur.

Beyond sales, there are risks in hiring. It may take you a month or a few months longer than expected to hire any of the people in your hiring plan. How will that affect your revenues and expenses?

What happens if it takes you ten months to get funding, instead of five? Or if you get only half as much funding as you need?

Many companies have regulatory risks. Do you need a license to operate? What do you need to do to get and keep that license?

Some companies have international risks. If you do business in another country, how can you be certain you and your goods will consistently be able to cross the border or that the currency won’t fluctuate?

Many things beyond your control can negatively affect your plans. The more you prepare, the better off you will be when one or more of these events occur (and they will occur).


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