Great founders don’t gamble. They reduce risk

Entrepreneurs are risk takers, or so the stereotype goes. Many have given up secure employment to chase the dream of becoming self-made and, perhaps, sunk everything they have into a potential success story. It’s a bold approach, and it may reveal why less than 35% of private sector businesses survive beyond a decade, according to the US Bureau of Labour Statistics. But what can make the difference between sink or swim? It’s often in the approach taken by founders: rather than going ‘all in’ blindly, they should step back and examine real-world evidence to properly assess each stage of a business launch. Doing so enables the ‘gamble’ of entrepreneurship to become a calculated, risk-aware process, not a hopeful bet.

Is there an existing problem, and are those affected prepared to solve it?
There’s really no point in wasting time and resources building a product or service before establishing that real-world demand exists. Belief in the concept isn’t enough; founders need to articulate the problem their business will solve to their target audience – and ensure there is a potential customer base to justify its further development. While positive early-stage feedback from friends and mentors is welcome, it’s much more effective to source viable intelligence from paid trials, up-front deposits and crowdfunding campaigns. Pilot schemes with credible commercial partners and website landing pages which test customer behaviours can also illustrate potential commitment and refine the target audience, price points, and appropriate sales channels.

Is your team ready?
Founders need to be honest with themselves about the limitations of their own capacity and be prepared to delegate, take on new people or outsource functions when necessary. As the team grows, everyone involved must know their role and align with the founders’ goals and expectations, with protocols in place for early resolution of any disagreements which arise. Similarly, preparing an operational continuity plan ensures knowledge is not lost and disruption is minimised if a team member moves on.

Is your financial plan strong enough?
Running out of operational funding is a common issue, highlighted by US Federal Reserve Bank findings that 56% of small firms seeking external financing do so at least partly to cover operating expenses. And it’s worth highlighting that of those who sought funding, only 42% got what they were after. Founders should instead focus on funding meaningful proof points and milestones, not the whole project from inception. Initial costs can be reduced by renting equipment rather than buying it, subcontracting wherever possible and ensuring supplier quotes are competitive and stable. If feasible, founders should maintain another source of income in the early stages, and should concentrate on achievable goals, such as launching a single product or focusing on a single market. This isn’t about lacking ambition; it’s about illustrating a proof of concept to potential investors and highlighting the solidity of the early-stage business case. Once early milestones are achieved, it’s then time to inject further funding to support ongoing momentum.

Are you familiar with the regulatory landscape?
Too often, founders have invested in a name they can’t protect, technology they can’t bring to market, or services they can’t licence as originally intended. Before committing to a project, founders need to investigate the industry landscape around licensing and regulation. Significant effort should be expended on establishing intellectual property rights; ensuring the business has the freedom to operate; and that cybersecurity, data protection and environmental safeguards are in place and will meet industry standards. Appropriately licensed partners can reduce regulatory and compliance burdens. They may already have direct experience of complying with employment and contractor arrangements, customer and supplier contracts and the legalities of import and distributary restrictions. Aside from assisting with critical early obligations, they can be instrumental in shaping the way forward and ensuring that compliance is in place from the outset, not bolted on as an afterthought.

What will you do if things go wrong?
Founders need to be prepared for setbacks, ensuring back-up plans are in place if a supplier can no longer fulfil obligations, a launch date slips or initial sales channels prove less successful than hopes. While these plans may seem more onerous and expensive in the short-term, in the long-term they could help the business avoid potentially damaging consequences. As with any business decision, it’s about weighing up the risks and opportunities and being prepared for any eventuality. Gamblers rarely make rational decisions, instead, they hope that the odds will work in their favour. By contrast, great founders closely examine reality, explore alternative avenues and only fully commit once they’re confident the evidence shows it’s the right time. Yes, they need to be bold, but they also need to recognise that courage should only follow an extensive and robust process of risk mitigation and calculated analysis.