Managing Risk in Early Stage Commercialisation

In Jay Ebbden’s (2005) article titled ‘Managing Risk in a New Venture’, he opens with the fact that you can’t completely avoid risk during early stages of commercialisation, but you can make it less dramatic. He discusses that risk taking comes naturally to entrepreneurs but the risk should be controlled. These risks are generally a product of if the business should fail, and ‘uncertainty surrounding the business, which I think is more aptly titled as simply ‘not knowing’. He offers up a list of possible risks, and some information on how to take positive action against them.

Beginning with ‘simply not knowing’; Research can help the business owner to fill in some of the voids surrounding market risk and this can be done by looking carefully at what Ebbden calls the three sources of business, “the market, the operational model, and the financial model” (2005).
The research should include questions like;

Ø  Is the market big enough to support my business?

Ø  Is the market growing?

Ø  What trends are there in the market that already exist?

Ø  How is the competition structured?

Ø  How does distribution work?

Ebbden cites a mentor of his, "Become a student of your industry", which I think is brilliant advice; the more you understand something the better you can work with it.

Next is operational risk, which questions the efficiency of the business, it’s inner workings including the staff that work within it, and its ability to achieve what it set out to. There is always a place for money when it comes to risk and during start-up is no exception. Whether there are products that need to be produced or products to be ordered and distributed cost and quality control can be barriers.

Managing financial risk for Ebbden aligns with the others and comes down to doing your homework. This should include financial projections that delineate revenues and costs, and understanding the financial obstacles that are likely to happen. These projections will assist in successful business management, although Ebbden does note that these predictions can only be operative if business is economically practicable.

Risk due to what is at stake is broken into two categories - opportunity risk, and a possibly weightier  financial risk. In any case it is obvious that the risks should be calculated and 'worth it'. The financial risk is the loss investors face when (if!) the business falls through, and no matter where the money came from for the start-up - credit cards, banks, or fff's, the impact is definitely felt. To lessen financial risk in the case of production for example, Ebbden suggests outsourcing - hiring and renting, so as not to be weighed down with property rent and the likes.

In the conclusion for his article Ebbden discusses once more the importance of research, understanding what steps you are taking, not just leaping and bounding. he also warns "not to get caught up in what is called analysis paralysis", meaning don't bury your head so deep in research that you miss your window of opportunity. This is a valid point for the 'over-thinkers' I imagine, I am horrendous at talking myself in and out of things, clothes I think I might like or what movie I want to watch!! Hardly important business decisions that my bank account and car repayments depend on!

"The key is to do enough research that you feel the opportunity is right, take steps to limit the downside risk, then execute your plan!"

-Ebbden

Reference:

http://www.inc.com/resources/startup/articles/20050301/risk.html