“Zero Risk Start-up: The Ultimate Entrepreneur Guide to Mitigating Risks When Starting or Growing a Business” is dedicated to all the wantrepreneurs and intrapreneurs out there who want to learn how to start or scale their own businesses at no risk. The book raises many interesting questions and identifies many of the risks. It also offers some sensible advice.
Acceptable risk
Entrepreneurs often trip up on a very common problem: they haven’t considered what their acceptable risk level is. Set your stop-loss limit. It is important to understand that the stop-loss limit is reached not when there’s no more money in the bank account but when your liabilities reach the limit you’ve previously identified. I could not agree more. For that reason, the book is absolutely worthwhile. Calculate your ALTAR and ALRIR: the acceptable level of Tangible Asset Risk (ALTAR) and the Acceptable Level of Reputational and other Intangible Risks (ALRIR).
ALTAR
A: Identify all owned assets that you and your family can (and are willing to) put at risk that can become liquid assets, such as money/securities, within a one-month period.
J: Estimate how many months/years you’ll need to find a new job in case your business fails.
T = J + F. T is the time that you’ll need funds to secure yourself for the worst-case scenario. Usually, it should be two to four years.
M: Calculate how much money you (and your family) will need in period T in case you won’t receive any salary from your business.
Your ALTAR = A – M
ALRIR
Identify the limits you can’t really live with if reached:
- Not creating a successful business
- Bankruptcy
- Having no job in the case of failure
- Media backlash against you because of any negative event
- Problems with relatives
MEFLO
And yes, identify the risks and try to mitigate as many as possible. The book uses MEFLO—market, entrepreneur/team, financial, legal, and operational.
Market
Are customers interested in buying your products/services? Is there competition? What are the unique advantages compared with the competition? How will the competition react to your company’s offer?
Entrepreneur/Team
Is your team balanced, or is it simply a bunch of techies without any market approach knowledge?
Financial
What’s the risk that one or more clients won’t pay on time, and with that lack of cash flow, your company may go bankrupt? Is the company dependent on a bank loan or on money coming from investors? Is the bank loan really secured, or is it still dependent on the bank’s approval? What happens if the bank doesn’t approve the loan?
Legal
Does your company have the freedom to operate? How is the intellectual property (IP) protected? What’s the patent status if one exists?
Operational/Technology
Is the product/service really innovative? Will it perform as you claim? Is there any reliable entity verifying that your calculations were done correctly and that the performance will be as expected?
ERTA
Then, apply ERTA: eliminate, reduce, transfer, and accept the risk. If it was only that simple.
Open doors
The rest of the book is full of open doors. Do your market research, pre-sell, crowdfund, the importance of distribution, conflict resolution, strategic partners, payment conditions, saving up for tax, bartering, platforms, buying into franchises, joining accelerators, not hiring consultants, networking, pop-up shops, etc., etc..
Entrepreneurship: The Planning, the Execution, the Attitude, the Lessons
If you are looking for an extensive list, this book is for you. I particularly like the ALTAR, ALTIR and the MEFLO frames. But there are a lot of better books on entrepreneurship and start-ups. I will definitely not include this book in my next edition of “Entrepreneurship: The Planning, the Execution, the Attitude, the Lessons.” I think the book is too simplistic, and zero-risk start-ups do not exist.
Need help?
If you want to discuss your start-up, feel free to set up a call here. I’m always happy to help fellow entrepreneurs.
