Ensuring that you can run your business and service customers after a business disruption is critical. The business disruptions don’t have to as big as a magnitude 9 earthquake however its impact on the business can be similar, especially in a Start-up enterprise.
In the initial phases when you are developing your product and working with limited customers it is important to ensure you have thought about things that can go wrong and disrupt your business. Examples of these could be:-
– disagreements between co-founders or some co-founders leaving (case of Housing.com )
– leaving of a critical employee
– unable to hire the right skill sets when it is time to scale up
– crashing of computer/harddisk with key piece of code/website
– unexpected competition from new or established players
– A key vendor backing out
The founders should spend time to review their business practices, infrastructure and business relationships to ensure they are aware of any critical points of failure (which in a start-up maybe all!!!!) and look at possible backup plans they can formulate before hand to ensure they don’t too many crisis to manage. They could even have someone from the outside do a quick review to ensure they are covered all angles.
Being an auditor, I was interested to learn about things that can go wrong and found this one articles (5 Common Startup Mistakes That WIll Sink You Later) on mistakes that start-ups make. Except for the last point about building the right processes and controls all other topics are have been covered to death by most other articles that I read.
Also, why should you think about boring things like processes and controls? Especially when starting something on your own was about breaking free and not worrying about them in the first case! Well, having controls and good processes are as important as having a good foundation for your house. If the foundation is not right you would have problems in future which will be very expensive to fix or may take the whole house down.
- There is no revenue leakage i.e. you are making sure all the work/product/services done for the customer is getting converted into rupees or seen as a value add by the customer. This is one of the most important control in even the most mature organisations who struggle to ensure customers are being billed for everything. For a start-up this is even more important as in the initial phases we are struggling for every rupee.
- Structuring the company, looking at regulatory requirements, taxes etc. For example there is recent news that Flipkart maybe in breach of Rs. 1400 on FEMA (Refer http://articles.economictimes.indiatimes.com/2014-04-30/news/49523491_1_accel-partners-flipkart-online-services-cedar-support-services). Something like this if upheld can cause real problems when you want to sell your stake or go in for an IPO.
- Controlling the vendors
- Ensuring compliance’s are met on an ongoing basis
- Controls on information and customer data
- Working Capital Management
- etc. etc.
I hope I have been able to give some insight about why it is important to ensure you have the right foundation for your venture by putting in a good structure and control principals as soon as possible. These can then be expanded/evolved as the company grows.
The best option is to think about these and try and implement it yourself. You feel you need help you could work with any number of consulting firms to help you with these if you are well funded and able to spend big dollars or you could with freelance consultants like me to help you navigate these risks.