De-Risking Entrepreneurship: Reducing Risk Through “Risk Mapping” and Insurance Coverage
Share this article!
Entrepreneurship is exciting and helps drive the innovation that builds the cities we live in and work in. Choosing the entrepreneurial path provides many benefits for those who endeavor to do so, but as exciting and rewarding as starting your own business can be it’s equally difficult and scary in that it comes with many inherent risks. When you’re preparing to launch your business it’s essential to not only plan for the positives but also think through potential risks or complications that may arise. One effective way to plan ahead is by using a tool called a Risk Map. Risk mapping is an easy exercise any business owner can – and should – conduct.
At SpaceCadet we aim to de-risk entrepreneurship at all stages, from providing flexible mico-rentals for commercial space to offering the tools you need to achieve success. In this post, we’ll share how to make a Risk Map to help you identify and assess risks to your business. Identifying risks is the first step to reducing them, and an essential factor in selecting your commercial liability insurance plan (something we’re able to help with, too).
Major Risks To Your Business
Risks will vary depending on your business type, location, upfront capital or investment and a variety of other factors. Despite differences across industries and companies, however, there are some common risks faced by entrepreneurs.
- Planning For Unforeseeable: It’s hard to predict all outcomes – positive and negative – and no matter how much planning you do it can be difficult to anticipate all scenarios.
- No Differentiation: While many businesses have great ideas, a failure to identify a unique feature that sets you apart from the competition and provides an “edge” is a common pitfall.
- Ignoring Customer Needs: A major mistake some businesses make is in failing to conduct appropriate market research or being blinded by ideas that have not been validated or vetted. Just because you build a product or offer a service (“because it exists”) does not mean a customer will want or need it.
- Financial Management: Challenges associated with managing capital and budget, as well as financial planning for the longer term, can be especially difficult for first-time business owners.
- Premature Scaling: Growing too quickly, or preparing for anticipated growth before it’s been proved out (by doing things like expanding to a large space, adding multiple locations, or over-projecting) can have catastrophic results.
- Poor Location: Selecting the wrong location – geographically, in relation to your target audience, or even through an inappropriate space – can be a huge blow to a business, and also difficult to rectify if you’re locked into a long-term lease.
Identifying Risk Using A Risk Map
In order to mitigate these risks, it’s important to identify what the major risks to your business are upfront. One effective way to do so is by creating a Risk Map.
Risk mapping involves identifying perceived risks to your business, then ranking them on their impact within a given time period. Risk mapping can be done at a macro or micro-level, depending on where you are in your planning and how granular you’d like to get. Below we’ll look at an example of a home-based cookie baking business to illustrate how the process works.
Step 1: Define Milestones
In order to plan for risks that are in line with the plan you have or your business, the first step is to define major anticipated milestones for your business for three pre-defined time periods: 0-3 months, 3-6 months and 6-12 months. This will help you prioritize which risks to tackle first later in our process.
New Home-Based Cookie Baking Milestones:
- 0 – 3 Months:
- Start baking cookies in a home kitchen
- Sell cookies to customers directly
- 3 – 6 Months
- Rent commercial kitchen to fulfill larger orders
- Wholesale cookies to local restaurants
- 6 – 12 Months
- Hire employees to help with orders
- Purchase company vehicle for delivery to wholesale customers
Step 2: Associate Risks With Milestones
The next step is to associate a risk (or risks) with each milestone. This allows you to be proactive in planning for related challenges that might arise while you work to reach your milestone.
|0 – 3 mo||Bake cookies in a home kitchen||Fire in space|
|0 – 3 mo||Sell cookies directly to customers||Customer gets sick|
|3 – 6 mo||Rent commercial kitchen for large orders||Equipment breaks|
|3 – 6 mo||Wholesale to restaurants||Restaurant customer gets sick|
|6 – 12 mo||Hire employees||Team member gets hurt|
|6 – 12 mo||Purchase company vehicle||Vehicle breaks down|
Step 3: Label Risk Impact
Next, label the impact level or each risk you’ve identified as either “high” or “low.” High risks have the potential to kill your business, while low risks may slow a business down but will likely not necessarily destroy it.
|0 – 3 mo||Bake cookies in a home kitchen||Fire in space||High|
|0 – 3 mo||Sell cookies directly to customers||Customer gets sick||High|
|3 – 6 mo||Rent commercial kitchen for large orders||Equipment breaks||Low|
|3 – 6 mo||Wholesale to restaurants||Restaurant customer gets sick||High|
|6 – 12 mo||Hire employees||Team member gets hurt||High|
|6 – 12 mo||Purchase company vehicle||Vehicle breaks down||Low|
Step 4: Create Your Risk Map
With the information you have compiled, it’s now time to fill out your Risk Map. This will help provide a visual of what to address first. For example, the top left quadrant highlights what to prioritize first(short term, high risk), and should help in your conversations as you acquire your commercial insurance. The bottom left (short-term, low risk) and upper right (long-term, high risk) quadrants come next, with the order of priority being dependent on the resources required to put a plan into action. The bottom right quadrant is last in priority and is usually something you don’t have to worry about just yet (i.e. why worry about commercial auto insurance when you haven’t bought the van yet).
Decreasing Risk Through Insurance Coverage
With your completed Risk Map, you now have a guide to help you navigate the often complex world of commercial insurance. Often times, as business owners, we are recommended lines of insurance coverage that may be better suited at later stages of our businesses’ life cycle. With your completed Risk Map in hand, you are now able to discuss the potential insurance needs of your business in order of priority. This way, you get the protection you need, at the time you need it most.
In 2019, we were fortunate enough to partner with Nationwide Brokerage Solutions, a division of Nationwide, to simplify commercial insurance for early-stage small businesses and startups. As the Nation’s #1 small business insurance provider, you can have peace of mind with comprehensive and reliable insurance coverage that includes:
Flexible Coverage, Customized Solutions: Feel protected and prepared with multiple options best suited for your business, at any stage.
Extensive Carrier Network: Your needs are unique, and Nationwide’s carrier network can help you find the right solution for your business.
Dedicated Risk Professionals: They care about your business and relationship, and work diligently to support your progress and success.
At SpaceCadet, we understand insurance and entrepreneurship are on the same side, and we can help make sure you have the protection you need. Having premiere insurance partners ensures that whether you are a SpaceCadet Landlord or Renter, we’ve got you covered – at every stage of your business.
We’re here to help you along your entrepreneurial journey, from creating your risk map to finding a space, to ensure you’re covered. Fill out our form, and let’s work together on achieving your business’ milestones!
Ready to find Space?
Contact us to learn how micro renting can help your business today.