Lowering the risks in a startup

Risk vs Reward

Venturing into the unknown with a startup is a risky venture. Throughout the process, from company formation to receiving your first round of venture capital, you’ll need to take risks. If these risks pay off, you’ll see success, and if not, you’ll likely see the quick demise of your startup.

Being agile and lean enough to keep pace with competition and out manoeuvre them can be crucial. Envisioning where an industry is leading and being the first at the line can give a great competitive edge in the forerunners area. Foresight and understanding the market you’re entering can reduce the risks greatly, understanding what your competition is doing and where they have been with ideas can give a good indication in whether a product will ship well or if it will flop.

Keep up or lose out

From competitive analysis through to industry research you can drastically reduce the risks that a startup takes in the technology space. While multinationals have very large budgets, countless resources and years of market research to determine whether a product will gain traction, a startup has limited resources and is often pushed to get a product to market as quickly as possible. Understanding the landscape can be critical to success and having the right product which hits the zeitgeist of the moment is what can fuel fast, expansive growth.

The speed that the technology landscape changes is both a risk and an opportunity, both to keep up with as well as allowing for opportunities to expand. Startups can pivot between ideas if one doesn’t gain momentum, examples such as Twitter starting off as Odeo, a playlist aggregator, came from a pivot by the Twitter team. There are certain times when you’ve got to cut your losses and make a drastic change, it could be for the best.

Finances & IPOs

As with all companies there is financial risk, though startups may feel it more as cash needs to be put on the line. Venture capital from funding rounds can bring in much needed investment into a startup and allow for some breathing space when it comes to hiring key staff and making investment into the company. Venture capitalists are well aware of the risks involved when it comes to making investments and if a product does become a success, it can cover a great portion, if not all of their capital portfolio.

IPOs from the likes of Zyna, Facebook and the upcoming initial public offering of Twitter shows a few startup successes, although Zynga has seen their stock plummet 67.6% over the past two years. Facebook wasn’t having much success with its’ IPO, seeing a steady decline during the year until their Q2 Earning Report where they saw a large jump, and now a continued increase. The continued rise of the monthly active users raises the question of, when will the Facebook demographic be saturated? Only time will tell.

The startup stars would give the impression that it’s all an easy route through to becoming wealthy but the reality is far from that. But if you’ve got the idea and get the backing for the idea then it can be a risky but rewarding step to take.

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