How can I minimize the risk of loss from a new startup?
I want to start my own business. I know that many new businesses fail. How do I best minimize my risk of loss; both for me and potential investors?
The BEST thing to do first is to do a business plan. In that plan you put together a picture of what it will cost and what you need to do to sustain and grow your business. From there you might seek out a mentor at SCORE to review your plan. If you can, find someone in the same industry to give insight. Then that business plan will help you if you need get small business loans, funding or even investors. There are really excellent software (Google "business plan software") products to help you, its not easy, but will definitely be an excellent first step to seeing whether your business is viable before you spend any more than the software's price.
Be viciously lean, reinvest the money you make straight back into business for growth, carefully control the amount you spend on wages if you do have need to hire anyone and if you are going to have a partner in the business, do not split the control of the businesses 50/50 but instead do 51/49. Go into it with a clear single leader who will have the final word at the end of the day.
I agree that more information is required to give specific answer, but I do think there are some generic things that apply to all business.
Make sure you understand your market and your customers needs. Figure out what the customer values and understand what drives their purchasing decisions.
Make sure you understand how the distribution channel works.
Understand your own business, know your costs.
Set goals, both short and long term, and measure your progress against those goals.
Don't be afraid to change direction if what you are doing is not working, but be sure when you do this that you have a good reason to (some people bounce from one thing to the other without giving any approach an opportunity to succeed, this is just as dangerous as sticking with something that isn't working).
Make sure you have a good team!!! composed of people who understand startups and are reliable and honest. You can have the best business plan in the world but if it is poorly executed it will fail every time.
Seek outside advice, from as many sources as possible. Implement the advice that you think makes sense for your business.
Outsource tasks that does not provide value to your business.
Make decisions that you can leverage to grow the company.
This list is by no means comprehensive, but should get you a good start.
In general minimising risks can be done by conducting thorough research.
With the data from your research you construct your business plan which should at least cover a marketing plan, sales plan and financial plan. The research will also lead to a strategy or multiple strategies where you describe how you will handle everything ranging from the worst case scenario to the best case scenario.
Bottom line: Leave nothing to chance.
Also, the less you invest, the less you can lose so if it applies it is usually safest to start small and scale up rather than going in big.
Regardless of your business, business experience, or business model, surround yourself with a board of advisors - people who know business, perhaps are experienced in your industry, have an expertise, but mostly care for your well being and success enough to tell you when you're making rookie mistakes.
In today's world you can host a Board of Advisors meetings on free video conferencing platforms. Submitting yourself to the accountability and experience of a BofA will help you map a faster road to profitability and prevent you from stepping in as many potholes along the way.
It takes effort and time to keep them connected but the return on investment will be well worth it...provided you present truthfully and are willing to listen.
Several things come to mind...1) Create a comprehensive Business Plan and get feedback from others on the plan, 2) Make sure you have enough Initial Capital to get you to the point where you are Cash Flow positive, 3) Engage with several mentors or advisers who have well established success in a related industry, and 4) Make sure that you have your Sales Process figured out early in the game.
It's impossible to answer that question without knowing the business model. If you have a business model canvas, plan, or even a brief explanation, please post it. It would help me further understand what risk would be involved.
Great questions Khan, in fact I wish thousands of dollars ago I would have asked the same question. Everyone has given great answers to your question, but the one I didn't see was understanding margin and how it will impact your business. All of the mentoring and coaching in the world will not help you if you don't understand that simple fact.
Insurance people will tell you that minimize risk means letting someone else take on the majority of the risk, in business (unless your using someone else money) it doesn't apply. Well in all actuality it does.
I once heard never go into a place that you don't know another way out of, same principle apply to business.
2) Others people money ( great well thought out business plan)
3) A good exit strategy
The product, location, marketing , great customer service and learning from each mistake will determine your company's success or failure.
Good luck !!
I will agree with the advice others have given: create and follow a thorough business plan. Be sure that plan has a 5 year forecast of the financials that is as realistic and detailed as you can make it.
Pay yourself. Unless this business is a "sideline" you will need to make a living from it.
Create a "board of trustees" or advisers to guide you and listen to their advice.
Stay in tune with your environments: competitors, economic, regulatory and political and be ready to adapt when changes occur.
Be flexible and open to new ideas and opportunities and add them to your business plan and forecasts. Also be quick to stop anything that is losing money.
By developing a well done business plan and a break-even analysis for the first year before you start. This will give you the best view of whether or not you can be successful.
You must do a REALISTIC break even analysis, i.e. an honest projection of likely income as well as likely expenses. The 'break even' point is where your revenue starts to exceed your expenses. If you are going to run out of cash before that point, you need to change your plan.
Focus religiously on how your business differentiates itself from competitors. There has to be something or you are in the wrong business. Use those items, plus the other compelling reasons someone would buy from you rather than your competition and design your marketing messages around them.
Then take advantage of all the no-cost, low-cost sales/marketing techniques that really work until you get off the ground.
Reach out for help to fill gaps in experience or expertise. Statistics have shown that one of the biggest reasons new businesses fail is that the owner does not realize his/her weaknesses or that they do but don't do anything about it.
As Nathan and Daniel mention, the key is to the lean startup model that Eric Ries and Steve Blank teach. Here's a longer Quora discussion I wrote - http://www.quora.com/How-can-I-start-a-business-with-low-or-no-risk-and-little-or-no-start-up-capital/answer/John-Chang-7
Treat your customers well.
Ask for repeat business and referrals. Personally.
Overestimate expenses and underestimate revenue.In fact, depending on the business, estimate no revenue for a significant period.
Expect expenses to increase from current prices soon. Do not expect to raise your prices to cover this.
Have plenty of capital and sources of additional capital.
Have plenty of personal capital set aside for personal expenses as well.
Do a thorough and complete business plan.
Try to start as lean as possible. Our blog in the resource center might help you.
Most businesses that can find a mentor have a much better chance of success. You might find a business person who can help you in networking groups or your local Chamber of Commerce.
Use Sendoutcards, builds strong relationships, referrals, and anot her stream of income. Best customer relationship management tool out there
I have a free short e-guide for startup financing, and business development ideas with case studies at the end. The best way to keep your promises is to be firmly grounded in common sense, not cinderella stories often sold in tv interviews or big name mags.
As many have said here - your question is almost impossible to answer without more details. However on piece of advice I can give is that your cash-flow with 90% certainty will be worse than you forecast, so be prepared for that.
Many responses here to give you a head start Khan. I agree with @RoryCollins, It's impossible to "fully" answer that question without knowing the business model. However, I will have to side largely with @MarkFackrell, @BobbyGoodmanII and @WayneBidelman as your question is mainly about risk management.
As you're in "Seed Stage" - Firstly make sure you understand your business - Is it solution based and meeting the needs of your potential customers. Secondly, you need to figure out what the customer values, do they align with your own - and understand what drives their purchasing decisions. All of this clearly identified in your plan.
Finally, @TerryGray makes an important point - find someone in the same industry to give insight, a mentor. Examine tried and tested methods and learn how to use the data available (market research, purchasing decisions, product engagement etc.) to test "market" your business idea.
All of these will help you develop a better understanding of the business model, whether it can be scaled and how you can minimize "investment" risk.
Hope this helps. Feel free to connect if I can of further help. Good luck.
Incorporate the business to avoid personal financial problems and stay as simple as possible. Low inventory, limited products and no staff. Split profits between new inventory and marketing costs to increase traffic. Take small steps and ,make it to the 2 year mark before you change anything major.
most important develop a business plan ...Also just as important a mission and vision statement, and learn about cash flow...Forecast revenues high. low realistic and know your cash needs upfront