Whether you are a startup or an established business there are a thousand ways to fail. It may be uncomfortable, but thinking about failure is as important to your business planning as marketing and budgeting.
In fact, if you are going to share your plans with investors, it is the single most important topic they will want to see.
How to Plan for Failure
Start by covering the “big 6 business risks”: Product or Technology; Market Acceptance; Key Employees; Competition; and Financing. These risks are important enough to each have their own section of your business plan. And there are plenty of other articles about these typical business risks, so let’s go beyond the basics.
Start by covering the “big 6 business risks”: Product or Technology; Market Acceptance; Key Employees; Competition; and Financing. These risks are important enough to each have their own section of your business plan. And there are plenty of other articles about these typical business risks, so let’s go beyond the basics.
Take your strategy to the next level by writing a new section of your business plan simply called “Risks”. Don’t hold back. This is one place in your plan that you can let your imagination go wild. So put on some gloomy music (Amy Winehouse? Pink Floyd?) and imagine all the ways that your business could come crashing down:
- Government Regulation? Yes! Just look at Amazon’s battle with sales tax. What could Congress do to your company?
- Supplier Dependence? Sure. If making and delivering your product or service relies on a single key vendor, describe how you will find alternatives.
- Natural Disaster? Absolutely. If your business would be mortally wounded by an earthquake, hurricane, tsunami or tornado, write it down.
- Technology Changes? Oooh boy. Now you’re talking. What if Microsoft launches a new version of Windows? What if people switch from PC’s to Tablets? Imagine how streaming is killing DVDs. You get the idea.
There is always a long list of risks – things that could go wrong. Brainstorm as many as you can, then include your top 5 or 10 in the business plan document.
Dodge the Bullets
The point is not simply to list these threats, but to understand how you can (a) avoid them; or (b) adapt to and overcome them.
The point is not simply to list these threats, but to understand how you can (a) avoid them; or (b) adapt to and overcome them.
If an earthquake would disrupt your internet-based servers… you better look at hosting in multiple cities sooner rather than later. If you are sourcing key parts from just one supplier, describe where you will find a secondary source if the first one fails to deliver. Every plan A needs a plan B… and maybe a C, D and E too.
The more important a piece of your business plan is, the more you should reinforce it with contingency plans. Presenting Failure to Investors Identifying failure points in your business plan is one way that you are reducing risks for your investors.
Of course, this process can backfire if your contingency plans are too different from your original concept – no investor wants to hear that Plan A is selling organic vegetables, but Plan B is to host websites. A great Plan B leverages everything you know and have already accomplished.
Remember, Plan B should be a "business pivot", not a retreat.
New businesses are inherently risky. No entrepreneur or investor believes they are not. But there’s a difference between starting a risky business and starting a business after you’ve identified and planned for the risks. So give your business the fighting chance it deserves.
Consider your risks, your risk avoidance strategies, and how you will adapt in the worst-case scenarios. Your investors will thank you, and your business will be stronger for it.
Dedicated to your (Risk-Adjusted) success, David
By: David Worrell
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