Canva was launched in 2012 and it acquired the Unicorn status in 2018 (six years after its launch). We know what a soul-saver this startup has been in the graphics and design industry. With Canva, anyone with an internet connection can create graphic designs and other content using their free and premium accounts. But do you know that even a prominent Unicorn company like Canva suffered a cyberattack? The cyberattack occurred on May 24th, 2019. Seven months later, Canva realized that approximately 4 million Canva accounts with users' passwords were stolen during the data breach incident.

What did the startup do after the hack? To guard against other cyber threats and attacks—one of the biggest risks that companies of all sizes face, that same year, Canva set out to achieve ISO 27001 certification. ISO refers to the international standard that outlines the requirements for an information security management system (ISMS). It uses a set of best practices to enable organizations to put in place top-notch risk management systems that will help them plan and coordinate their security expenditures while earning marketable recognition. 

From all indications, Canva's big security upgrade journey as a result of the data breach in 2019 was necessary to house and safeguard not only its intellectual property but also its users' data. It was also a risk management approach targeted at strengthening and reassuring users' safety and rebuilding trust while also staying competitive in the market.

Today, 135 million people use Canva every month around the world. From Canva's experience, we see that effective risk management helps startups guard against future uncertainties, stay proactive and defensive against any kind of unforeseen circumstances, and then compete favorably. This article covers the basics of risk management for startups, including how to identify and assess risks and how to develop a risk management strategy.

What is risk management?

When we talk of risk management, it refers to the process of identifying, assessing, and controlling any risk or uncertainty that might have an impact on the objectives, programs, or operation of a company. Risk management emphasizes that companies must be able to make well-informed decisions to minimize potential harm or losses and improve their capacity to do so in order to accomplish their goals. Due to their limited resources, changing business models, and intense competition, startups frequently encounter certain difficulties and uncertainties, just like Canva. For this reason, they must handle risks effectively if they are to develop and expand in the long run.

Types of risks that startups face

Some of the common types of risk that startups face are:

1. Financial risk: Although this does not only apply to startups, it describes a state where a startup lacks the needed cash flow to meet its goals and objectives. For example, hiring qualified talent and funding marketing expenses Curbing market risk is one of the many reasons startups appeal to investors, for instance, on Shark Tank and also raise money through crowdfunding. 

2. Operational risk: As a startup, this is a very common uncertainty. This raises the possibility that the company won't succeed and will have to close because of failures in internal processes. For example, lack of cooperation among team members, a lack of market demand for products or services, or financial challenges 

3. Market risk: Since the success of a firm frequently depends greatly on consumer demand for the product, market risks are a big issue for startups. Market risk revolves around a startup's uncertainty about its ability to attract enough consumers or produce enough revenue. While this is a common risk that all startups face, market risks might differ depending on the industry and niche in which the business is established.

4. Technology risk: Startups depend on technology to run smoothly, and technology on its own has many risks that need to be managed. Data security is one of the primary technology risks startups need to carefully manage. This means making sure that the company's data is secured from hackers and cyberthreats. 

5. Compliance risk: Compliance risks are risks that are associated with the laws, rules, and requirements that must be adhered to in order to satisfy the relevant regulating bodies. Depending on the sort of organization, sector, and location, compliance risks might vary greatly.

How to identify startup risks

Identifying risks early as a startup founder means you will also be able to take action early to reduce them or manage them effectively. 

Let's look at ways you can spot risks as a Startup founder. 

1. Know your industry or sector

Each industry has a particular set of uncertainties. Before you even establish your business, investigate the typical uncertainties and traps companies in your industry encounter to uncover dangers unique to that sector. For instance, if your startup is in the automobile industry, you know that you will face liability risk. So your product must be reliable and trustworthy. With this knowledge, you will be able to warn your team and engineers during production.

2. Understand your customers or target audience

When it comes to spotting risk as a startup founder, your customers, and target audience are another important source of information. Why? Because without your target audience, there will be no sales. So you must know their pain points and strategize to overtake competitors to avoid market risk. At this point, the question to answer is: What is their pain point? What's the competition like? How can you beat your competitors? What will discourage them from using your offering? Answering these questions within your team helps you first create a product that solves a problem. Also, you will be able to position your marketing strategically to target only the right customers and avoid the risk of targeting the wrong customers who will end up not buying or using your service. Also, you will know how to strategize your product to have an offer advantage over your competitors so that all eyes are set on you in the market.

3. Consult professionals

According to Levi Strauss, a German-American businessman,

An expert knows all the answers if you ask the right questions

Always remember that before you, there are millions of other successful founders in your industry. These people are there for you to learn from, seek advice from, and be guided by. Consult professionals in your sector or field if you're unsure how to identify risks that are unique to your company. These people can provide insightful information about potential problems you might be omitting because of their experience.

4.  Consult Your Team About Feedback.

Another good way to spot risk in your company is your team members. Their knowledge and experience in the industry can help shed light on areas you are probably not aware of. Ask them to brainstorm with you about the major challenges they perceive that are peculiar to your industry.

It's very important to take action to mitigate potential risks after you've discovered them. You can lessen the effect of risk on your company and keep your startup on the right track if you're quick to spot these risks and take proactive actions.

Strategies for risk management for startups

You already know by now that every startup is prone to risks, threats, and uncertainties. While some of these risks can be anticipated, others are unforeseen. Whichever way, here are some strategies you can follow to manage risk as a startup founder and still compete favorably in the market:

1.  Identify the risk

The first stage in risk management for startups is risk identification. Of course, you cannot solve a problem you don't know about or are not aware of. This strategy involves a thorough analysis of all potential risks and uncertainties that might have an effect on the startup. However, both internal and external risks should be taken into account here. While external risks could include market instability, competition, and regulatory changes, internal risks could include operational inefficiencies or a lack of trained employees. Startups can effectively anticipate problems by completing a thorough risk assessment, which enables them to create plans for risk mitigation and emergency planning.

2.  Prioritize risks

Startups should assess and classify detected risks based on their potential impact and likelihood of happening. Priority should be given to risks that have a high likelihood of happening and could seriously hamper the company's productivity. Startups can more efficiently allocate resources by prioritizing risk mitigation for the most important risks first. They can then improve their overall risk management strategy by focusing on high-impact, high-probability risks.

3. Create a risk register

A risk register refers to a formal document used as a risk management tool to record all identified risks in a company. It acts as a central repository for all recognized uncertainties. It contains comprehensive details on each risk, such as a description, probable effects, and suggested mitigation techniques. All parties involved in the company, including investors, are informed of the risks the startup faces and how they are being managed.

4. Risk mitigation 

Risk mitigation involves creating and putting into practice measures to lessen the impact or possibility of identified risks. Depending on the type of risk, these strategies can differ greatly. For instance, if a business discovers a cybersecurity issue, mitigation steps can include improving data encryption, carrying out routine security audits, and educating staff members on cybersecurity best practices. 

5. Insurance 

Insurance is an important part of risk management for startups since it provides a defense against specific threats. Startups should examine insurance options that address their vulnerabilities and carefully assess their unique demands. Liability insurance, which pays for court fees in the event of lawsuits, property insurance, which safeguards material possessions, and business interruption insurance, which covers financial support during unforeseen disruptions, are examples of common types of insurance. Even though insurance can add to costs, it can offer comfort and financial stability in the event of unplanned occurrences like natural disasters or product liability claims.

6. Legal and Compliance 

Startups must be on the lookout for legal and compliance concerns, which are common in many industries. They must keep up with rules, licenses, permits, and compliance needs that are specific to their industry. Legal issues, fines, or even closures can result from a failure to comply with legal and regulatory requirements. To manage these risks, and create effective compliance processes that reduce legal and regulatory risks, startups should invest in legal counsel or compliance specialists.

7. Continue to monitor  

One core principle of risk management for startups is continuous monitoring. As the company develops, it includes routinely assessing and updating risk assessments and risk management procedures. As market conditions change or the company expands, new risks may appear, and the effects of current risks may change. Risk management is continuously monitored to make sure it is current and adaptable to the dynamic nature of startup operations. Additionally, it enables entrepreneurs to quickly respond to new dangers or opportunities.

Final thoughts

For any startup to thrive and be successful, risk must be properly managed. Core strategies include identification, prioritization, creating a register, risk mitigation, insurance, legal compliance, and continuous monitoring of potential risks. In a world where risks are omnipresent, startups have hope of surviving and excelling in the long run with these strategies in place.

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