Today the Indian start-up ecosystem is home to more than 69,000 start-ups who are at the forefront of the internet revolution in India. From ecommerce to electric vehicles, the Indian start-ups are also the torch bearer for innovation in the country.
However, when anyone talks about start-ups, one of the first things that gets mentioned is the now-infamous failure rate that’s quoted in just about every tech blog and magazine; the ultimate start-up statistic that 90% of them end up failing within the first 5 years.
Even before the rise of start-ups—starting your own business has always been a difficult and risky endeavour. Just like any other business, the success of your start-up can be determined by a string of calculated risks that you are going to have to take, most predominantly, in the early stages of your company’s growth. But as the business matures, you should be able to adapt and be cognizant of the risks that the business confronts. Rather than attempting to bring these risks to zero, you should make a judgement call about which risks need to be mitigated (and to what extent) for their specific context.
Let’s take an in-depth look at some of the most major start-up risks that young companies face and what entrepreneurs can do to try and avoid them or, at the very least, mitigate the damage they can potentially cause.
1. Product Risk
Entrepreneurs are often heavily invested in their product, and roll them out to the open market with pride. However, why do some products flop while others make their mark on the world? Consider the risk your product faces as you release it to the public.
As start-ups launch new products, they also need to deal with defects, contamination, and recalls. And with these come the potential for claims from unhappy customers. Even with strong safety and operational practices in place, every year thousands of products are recalled, both voluntarily and involuntarily.
If one of your company’s products causes bodily harm or property damage, you could find yourself facing major lawsuits and negative media attention.
2. Property Risk
Property damage doesn’t just mean earthquakes and floods, even though these risks are also very real for businesses operating in at-risk areas. Your property can be damaged by wind, rain, and other weather conditions. It could also be damaged by fires, lightning, or electrical malfunctions.
Faulty wiring could take out your whole system of computers and servers. Your business could be vandalized. The number of things that can cause damage to your business property is almost endless.
3. Cyber Risk
This is the digital age. And surviving the challenges in this age requires small start-ups – especially the ones operating online – to be super agile to counter the so-called online security threats. Whether it's customer credit card information or your employees’ bank account information, it’s all vulnerable to cybercriminals.
Many start-ups make the mistake of believing only large corporations are susceptible to cyberattacks, but nearly a third of all data breaches involve small businesses.
Can your start-up afford to cover these costs?
4. Legal Risk
Lawsuits against small businesses have been on the rise recently, especially against start-ups, where there is a lot of capital being invested. Legal risks are especially prominent because they are incredibly diverse.
Some of the common legal risks that start-ups face are:
• Compliance - Businesses that get on the wrong side of government regulations can face fines and even prosecution.
• Employee Lawsuits - As a start-up grows, more people will be added to the team. While exciting, this also increases the chance of employment-related lawsuits connected to harassment, discrimination, wrongful termination, and retaliation.
• Professional Liability - If a start-up offers professional services, such as accounting, legal, or consulting services, they are at risk of being held liable if their services result in a financial loss for a client.
• Breach of Contract - Breach of contract and contract negligence claims are very common for businesses that enter into legal agreements with their partners or customers. Claims of this nature commonly stem from issues such as failing to deliver products or goods, delivering products or goods that don’t work as they should, or failing to make payments according to timelines stipulated in the contract.
5. Crime Risk
Crimes in which money, securities, or property are stolen from your business can be committed both by employees and third parties. In fact, a huge percentage of business crimes are related to people who work for you or with you in some way.
Crimes such as theft, fraud, embezzlement, and more can end up costing your business huge amounts of money.
Role of Insurance in Risk Mitigation
Business Insurance helps you deal with potential problems that you cannot account for; unexpected events that could affect your business negatively. If you don’t have insurance, a fire or a theft can be a devasting loss that your business might not even be able to recover from financially.
When you buy business insurance, you are transferring the potential financial burden of such events to a third party, the Insurer. With the right commercial coverage, a start-up can operate with peace of mind and focus on growing the company.
Business Insurance can be considered to be the ultimate “better safe than sorry” business expense. Because the potential risks that you are opening your business up to by not purchasing insurance can be huge.
Insurance Covers for Start-Ups
No single small business insurance policy can cover all the risks that your start-up might face. Different types of commercial insurance address different accidents, lawsuits, and damages that could impact a business.
Some of the policies that form the foundation of any risk management program for Start-ups are:
a) General Liability Insurance - General liability offers broad protection against some of the most fundamental risks companies face. It covers common business risks like customer injury, customer property damage, and advertising injury. It protects your start-up from the high costs of lawsuits and helps you qualify for leases and contracts.
b) Employee Health Insurance - For younger companies, offering an Employee Benefits plan can act as a means to attract talent. Having a health & benefits program in place gives candidates peace of mind to apply. This policy covers indemnification of medical expenses incurred by the employee during hospitalization due to any illness or injury.
c) Workmen’s Compensation Insurance - When employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while simultaneously keeping companies running smoothly.
d) Cyber Insurance - Cyber liability insurance protects start-ups from the high costs of a data breach or malicious software attack. It covers expenses such as customer notification, credit monitoring, legal fees, and fines. Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.
e) Directors & Officers Liability – This policy protects your board members and officers against legal expenses if they are sued for a decision, they made on behalf of the company that led to a financial loss.
f) Errors & Omission Insurance - Professional liability, also known as errors and omission (E&O) insurance, covers companies in case of third-party or client lawsuits claiming substandard work or service.
g) Property Insurance - It’s a good idea for any business that owns or rents any type of property at all to purchase commercial Property Insurance. This policy pays to repair or replace stolen, lost, or damaged business property. It covers your business’s physical location and other assets like equipment, furniture & fixtures, etc.
How can Raghnall help?
Finding the right insurance for your start-up is our top goal and we want to support our clients in building a sustainable and profitable book of business. Our proposition for your start-up consists of expert advice, a suite of risk management solutions, as well as insurance products that are tailor-made.
We, at Raghnall, build partnerships with your organization that go beyond pure risk transfer and offer a variety of support services, like crisis management support or help with preventative measures.
Allow us to assist you safeguard your business from any circumstance which risks the business. With our recommendations and advice, you can secure the best-suited insurance policies for your business, encouraging you to move towards growth and enhancements.
To know more about how Raghnall can help you get the right Insurance for your business, contact us today at consult@raghnall.co.in.
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