How to Reduce The Risks Before Investment and Market Entry?

How to Reduce The Risks Before Investment and Market Entry?

The world of start-ups is unpredictable, with new entrants facing countless challenges they may not have anticipated. Whether it's choosing the right technology, the right people, building a well-designed business model, or creating secure financial backing, there are many risks that can jeopardise the success of a business. What risks should a start-up expect and how can avoid them? This article will discuss this.

What Are the Common Challenges Faced by Start-ups?

First, let’s outline some of the most common challenges new start-ups face.

Fierce Competition

Fierce competition is among the biggest challenges for start-ups. To stay ahead of the game, you need to play aggressively, punch above your weight, and gain recognition.

Unrealistic Expectations

Many business owners set unrealistic expectations for their start-ups. The only realistic expectation for a start-up is sustainability. When a business is sustainable, it’s also consistent and shows continuous efforts to improve.

Focusing on Quick Go-to-Market with MVP (Minimal Viable Product)

CEOs often have difficulty focusing on products with enough features to attract customers in the early development cycle. MVPs allow team members to collect valuable insights about their customers with little effort. However, getting there can be a real test.

Right Team Members

Creating a strong start-up organizational culture is a must for any new business. Teams should consist of members with the same focus and similar capabilities. To cultivate a truly inspiring team culture, you must hire the best possible candidates.

Cyber Security

Cybersecurity is a real threat to any online business, and start-ups are no exception. According to the CISA, consumers worldwide lose more than $350 and 21 hours per year due to online crimes.

Finding the Right Start-up Financing

Leaders must look over the horizon to ensure proper support and provisions for their teams. Raising enough money is crucial to ensure that everyone can do their job. However, finding the right start-up financing can be challenging for modern businesses. Candidates often run into issues when applying for grants or finding investors. Below are some of the most common problem areas:

• Irrelevant work or research
• Ineligible location
• Not communicating how your ideas will be addressed
• Funds don’t match
• Unrealistic work levels
• No strong rationale and compelling vision behind the proposal
• Poor financial planning
• Inexperienced management
• Poor business plan
• Not enough team members
• Lack of market validation

Winning the Trust of Customers

One of the most common mistakes is to enter the market with a product for which there is no demand. If the product is not well thought out, if it is not designed to meet the needs of the customer, it is unlikely to be successful. As well as attracting customers, retaining them is a major challenge and one that also needs to be properly addressed.

5 Critical Factors for Start-ups to Focus On

1. Technology (resources)

If the technology is highly mature and has been thoroughly tested in a variety of real-world settings, the risk of encountering unexpected technical difficulties is lower. In this case, the business can be more confident in the performance and reliability of the technology and can focus more on commercializing and scaling the business.

However, if the technology is less mature and has not yet been fully tested, the risk associated with launching a business based on that technology is higher. There is a greater risk of encountering technical difficulties, performance issues, or other problems that could delay or derail the business. This can be particularly risky if the technology is mission-critical or essential to the business model.

How a Start-up Can Properly Manage This Risk?

To mitigate these risks, businesses can take steps to increase the technical readiness of their technology:

• Conducting extensive testing and validation
• Working closely with technical experts and advisors
• Investing in research and development to improve the technology over time

Overall, the technical readiness of a new technology can have a significant impact on the business risk of launching a business based on that technology. By focusing on increasing technical readiness, businesses can reduce their risk and increase their chances of success.

2. Organisation (resources)

The success of any business, including one based on new technology, depends heavily on the quality of its team and its ability to work together effectively.

Poor organization and dysfunctional interpersonal relations within a team can create significant business risks. For example, if team members do not communicate effectively or work well together, this can lead to delays, errors, and other problems that can derail the business. Additionally, if team members do not share a common vision or goals for the business, this can lead to confusion and disagreements that can make it difficult to make progress.

How a Start-up Can Properly Manage This Risk?

To mitigate these risks, businesses can focus on building a strong, cohesive team with clear roles, responsibilities, and communication channels:

• Investing in team-building activities
• Creating a positive work culture
• Ensuring that team members have the necessary skills and experience to perform their roles effectively
• Businesses can ensure that team members share a common vision for the business and are aligned around its goals and objectives.

By focusing on organization and interpersonal relations within the team, businesses can reduce the risk of dysfunction and improve their chances of success. Ultimately, the quality of the team is just as important as the quality of the technology in determining the success of a new business based on innovative technology.

3. Business model

A start-up business plan is a crucial element in building your new company. The business model includes the value proposition, target market, channels, customer relationships, key partners, and key activities of the business.

How a Start-up Can Properly Manage This Risk?

A well-designed business model that is closely aligned with the needs of the market can help to reduce the risk of launching a new business based on an innovative technology:

• A clear and compelling value proposition that solves a pressing need or pain point for customers can help to generate interest and demand for the technology.
• A well-defined target market that is large enough to support the business can help to ensure that there is a viable customer base for the technology.

A strong business model can help to reduce the risk of customer acquisition and retention by identifying the most effective channels and customer relationship strategies:

• If the technology is best suited for enterprise customers, a business model that emphasizes direct sales and a consultative approach to customer relationships may be most effective.
• If the technology is targeted at consumers, a business model that emphasizes social media and influencer marketing may be more effective.

Moreover, identifying key partners and activities in the business model can help to reduce risks and improve the chances of success:

• Key partners can provide resources, expertise, and access to markets that can be critical to the success of the business.
• Key activities can help to ensure that the business is focused on the most critical aspects of the technology and its commercialization.

In summary, the business model is a critical factor in determining the risk of launching a new business based on innovative technology. By carefully designing a business model that is closely aligned with the needs of the market and the strengths of the technology, businesses can reduce the risk of failure and improve their chances of success.

4. Finance (P&L)

The Profit & Loss (P&L) statement outlines the company's revenues, costs, and expenses, and ultimately, its profitability.

The corporate finance model can influence business risk in several ways. For example, a company with a high burn rate, where expenses exceed revenues, can quickly run out of cash and be forced to shut down or seek additional funding. Alternatively, a company that is profitable and generating positive cash flow can weather unforeseen challenges and invest in growth.

Additionally, the P&L statement can provide insights into the scalability of the business model. If the business model is highly dependent on high fixed costs, such as manufacturing equipment or research and development, then it may be challenging to scale the business without incurring significant additional expenses. Alternatively, if the business model is focused on generating recurring revenues with low fixed costs, such as software-as-a-service or subscription-based models, then it may be more scalable and less risky.

Moreover, the corporate finance model can also impact the business's ability to attract investment and financing. For example, if the business model is highly capital-intensive, with significant upfront costs and long development timelines, it may be challenging to attract investors who are looking for shorter-term returns. Alternatively, if the business model is generating recurring revenues and has a clear path to profitability, it may be more attractive to investors and lenders.

In summary, the corporate finance model, detailed in a P&L statement, is a critical factor in determining the business risk of a new business based on innovative technology. By carefully managing expenses, generating recurring revenues, and focusing on scalability, businesses can reduce the risk of failure and improve their chances of success.

5. Addressing ESG factors

Environmental, Social, and Governance (ESG) factors in everyday operations and value propositions can also be critical factors in determining the business risk of the operation. ESG factors are becoming increasingly important to consumers, investors, and regulators, and ignoring them can lead to reputational damage, legal issues, and financial risks.

One way that ESG factors can influence business risk is by affecting the company's ability to attract customers and retain them. Consumers are increasingly looking for products and services that align with their values, and a company that has a strong commitment to ESG principles may be more attractive to customers than one that does not.

Moreover, ESG factors can also impact the company's ability to attract investment and financing. Investors are increasingly looking for companies that are committed to sustainability, ethical practices, and good governance.

How a Start-up Can Properly Manage This Risk?

A company that has a strong commitment to ESG principles may be more attractive to investors and lenders than one that does not. Additionally, incorporating ESG principles into the value proposition can lead to innovation and differentiation, which can reduce the risk of competition:

A company that develops a technology that reduces carbon emissions may be more attractive to customers and investors than one that does not. By incorporating ESG principles into the value proposition, companies can create a competitive advantage that can reduce the risk of being disrupted by new entrants or substitutes.

Incorporating ESG factors into everyday operations can also reduce risk by identifying potential hazards or risks and proactively addressing them. For example, implementing sustainable practices can reduce waste, conserve resources, and minimize regulatory compliance risks. Similarly, investing in employee well-being and diversity can reduce the risk of turnover, litigation, and reputational damage.

In summary, the involvement of ESG factors in everyday operations and value propositions is a critical factor in determining the business risk of a new business based on innovative technology. By incorporating ESG principles into the business model, companies can reduce the risk of reputational damage, legal issues, and financial risks, and improve their ability to attract customers, investors, and talent.

How Can Green Brother Help Start-ups?

Green Brother, based on the above-detailed approach, makes a thorough 5-factor assessment for each client (innovative companies) and recommends an action plan for them to significantly reduce the risks before investment and market entry or expansion.

The Green Brother initiative has a respected network of partners and represents the EIT InnoEnergy and EIT Urban Mobility in Hungary.

Apart from the advisory program, we also have a special Accelerator program with courses for business owners who wish to create a sustainable, environmentally friendly, and reliable business. Learn more about how Green Brother can help you find investors and scale your business by visiting our official page and booking a place for the matchmaking event INNspiration Gulyás for energy and mobility stakeholders.