No matter what type of business startup you’re planning, it will come with its own set of risks. Some risks are considered too high, while others may eventually lead to a successful business. Just because startups come with these main risks, doesn’t mean you shouldn’t take the risk and start your own business — it does mean that you should educate yourself on what could potentially go wrong. By understanding the key risks for startups beforehand, you can help to avoid potentially hazardous situations and protect your initial investment, while keeping your financial assets secure.
1) Inexperienced team – Your team of employees and partners is just as important as the business itself. Rather than only hiring people you know to work with you, hire people you trust and that have experience related to the industry. Just because you’re close with your cousin and trust her to be a good partner in a business, doesn’t mean her experience as a bank teller will make her a good executive at a financial firm. Choose your team wisely to avoid risks associated with an inexperienced team.
2) High failure rate – The industry you choose for your startup may be a risk on its own. If you are planning to start a business in an industry with a high failure rate such as a new matchmaking website or social media site, telemarketing firm, retail store, or work at home business, then expect investors to consider your startup a high risk.
3) Large initial investment – One of the key risks for startups is a business that requires a large initial investment. If you’re planning to start a business that will require funding from the very beginning that is above the average company, say a multimillion dollar investment, it is considered a high risk business. To avoid this risk, it’s best to choose a startup that does not require such a large initial investment.
4) Bound by government regulations – Some startups will require strict government regulations, such as a pharmaceutical company that involves drugs to be approved by the Federal Drug Administration (FDA). In this case, it is included in the high risk category due to how expensive and comprehensive the business will get in order for these approvals by the government.
5) Operating in a foreign country – Due to the differences in government and laws in general, a startup that will operate in a different country is going to have high risks according to investors. This is because the knowledge of the foreign country is general at best, which makes your business a very risky operation. Try to choose a business startup that can be operated in your own country.
While it helps to know the risks of startups and what types of businesses include the largest amount of key risks, don’t let it deter you from starting your own business. You can be successful and receive proper funding from investors even with risks, as long as you are aware of the situation as a whole.
