Preparing for the worst-case scenario can help you build a resilient startup
Starting a business is inherently risky. At ideation and even early implementation stages, the limited number of stakeholders can potentially leave you unscathed if something goes wrong. But what happens when VC dollars enter the equation? Or a customer is counting on you and your business to fulfill their needs?
That is when risk becomes real.
We’ll be talking about ways to mitigate your risks along your journey, and when you should think about implementing certain risk mitigation tactics to protect you from the unthinkable.
Fundraising for your new venture is a reason to celebrate! Success at the seed stage is judged by some as how much money you were able to raise. However, the more you raise the higher the risk.
In the due diligence process, investors may (and probably should) ask about your business insurance. Many founders will be asked this question after receiving investment terms, then need to scramble to implement an insurance plan they can show to their potential investors. Why not be prepared?
One of the first decisions you’ll need to make at this point will be around Directors and Officers (D&O) Insurance. D&O insurance can cover the costs of legal fees, judgments, and settlements for board members and company leadership in the event of lawsuits related to their specific duties as part of the company. While we won’t go into all the details here, you can read about the ins and outs of D&O and set up a time to talk with our friends at Vouch.
Investors will also likely want different things out of D&O than you may need as a founder. The article discusses those differences, but most importantly you should always look to get what you and your business need first.
When the lights go off and your product is down
You have done it! You and your small team have landed a pilot, created a partnership, or received an order that could change the path of your business and land you on the hockey stick growth trajectory you were hoping for. Now what?
Landing the opportunity is step one, and fulfillment is the next crucial step. Not to mention, fulfillment is where the majority of problems can happen that are simply out of your control.
The article, When Does my Startup Need Insurance, discusses what you should think about when acquiring new customers. Primarily your needs will fall into Errors and Omissions (E&O) insurance, and Cyber insurance. Having these systems in place will help you from having your biggest success turn into your biggest failure.
Don’t let lawsuits, unforeseen events, or mistakes that are out of your control change the course of your business. I could sit here and list scary statistics like:
- 70% of small to medium business owners thought a cyberattack would cost them less than $25,000.
- The average cost of a breach is significantly higher: $149,000.
- In 2018, businesses with less than 100 employees suffered a median loss of $200,000 from fraud
- The cost of damages from a D&O claim can range from six figures to losses as high as $18M.
But I’m not going to do that. All that matters is that you are protecting your hard work, and you have a plan in place that you can implement when the risk becomes real.