5 common start-up tech business risks: What not to do
From legal issues, such as getting sued by a competitor, to funding problems to securing great staff to protecting your intellectual property, there are many risks in starting a business, and that certainly includes tech start-ups. Forewarned is forearmed, so here are five of the top business risks that tech start-ups face and measures you can take to protect yourself and your livelihood.
Even the most experienced entrepreneurs can find it difficult to launch a technology start-up due to the many number of start-up risks. It is no wonder that many small businesses fail, and tech start-ups are not immune to this. A promising tech start-up can fail for a variety of reasons, from poor management to inadequate cash flow to simply not having a great product or service.Promising tech start-up founders often have to work with ifs, buts, and maybes in the early days of their business. While you may enjoy taking risks, in the immortal words of Kenny Rogers, you need to know when to hold them and when to fold them. And while you may not have the luck of Kenny Rogers’ gambler from his iconic 1978s hit The Gambler, you do have an ace in the hole – if you have reduced your exposure to risk by investing in business insurance such as tech insurance, (also referred to as start-up insurance) in your corner.
Here are five different types of common risks that start-up tech business entrepreneurs may consider, as well as tips for protecting their company from hidden threats.
1. Underestimating the competition or misjudging market demand
Many successful start-ups fill a market gap, but many misjudge the market demand and underestimate their competitors. It’s crucial to do market research before launching your tech start-up. This includes gathering and analysing data about consumer preferences, the competition, and computer programming trends within your industry.
This doesn’t require you to hire a consultant. You can reduce your competitive risk at low cost by:
- doing your own market research by researching online and reading reports from reputable organisations for the latest trends in your industry;
- sending potential customers an email questionnaire about their product preferences;
- asking your target audience via social media what they want to see from your business;
- asking for feedback from customers.
- knowing your competition and tracking their marketing campaigns and product updates.
2. A product or service that is poorly defined or of poor quality
Whether you are a software engineer or a software developer, you will benefit from truly understanding who you are selling to and why they will buy from you. This is critically important for start-ups. Start-ups in tech can benefit from clearly defining their product, its purpose, and the audience for which it is intended.
Start with a Minimum Viable Product (MVP) to help you define your product. An MVP is a new product released with basic features to gauge interest from consumers. If your product launch succeeds, you can use what you’ve learned to build upon your MVP. In doing so you could save a lot of money if the product doesn’t work.
3. A poorly considered business plan
Creating a business plan is one of the most important tips for tech start-ups and can help you avoid some of the risks of starting a business. After all, prior planning prevents poor performance. A business plan is a good idea even if you do not need to raise capital. It will be a guide for the future of your business. Essential things to include in your business plan are:
- an executive summary;
- a description of your business, including the business structure of your choosing;
- a list of your products and services;
- any business licence requirements;
- what makes you stand out from the competition;
- market research/SWOT Analysis;
- a marketing strategy;
- a business model, team structure, and management structure;
- a financial plan; and
- funding goals.
When running a start-up, it can be tempting to rush your product to the market. But rushing is one of the main reasons why new businesses can fail. You may benefit from resisting this temptation and taking the time you need to develop your intellectual property properly. Don’t forget that careful product development is important for tech start-ups. The quality of your product can make or break the reputation of your business, and poor-quality products could even lead to lawsuits.
If your promising tech start-up offers a service, you may want to consider Professional Indemnity insurance*. This coverage, also sometimes referred to as errors and omissions insurance, can protect your tech start-up against claims of negligence, mistakes, and oversights.
Consider also investing in Product Liability insurance, which can play a starring role in managing the risk associated with product development. Product Liability protects you against claims that your products caused injuries or property damage.
4. Cash flow problems
There are many reasons why small businesses fail. For start-ups, the risk of running out of money is very real. Be sure to accurately predict your spending in order to account for this risk. You’ll have to adjust your budget if your operating costs exceed your budget. It is critical to create a financial plan for your start-up in its early stages. Key components of a financial plan may include the following:
- your total budget;
- your operating expenses (rent, salaries, inventory);
- your current cash flow and income statement;
- capital raised;
- debt and loans; and
- your financial projections.
5. Underestimating Cyber-threats
All businesses can be at risk from a data breach or a cyber attack, which is why Cyber Liability insurance is something you may consider for your tech start-up.
Tech start-ups that handle or store sensitive data face even greater cyber threats. Data breaches are almost always very costly for small business owners. You could be hit with a large financial loss if your business is compromised. You could also face a costly lawsuit if you are blamed for the data breach of a client.
Protect your start-up tech business with BizCover
IT liabilities can cause big trouble for all small business owners, including tech start-ups. If the thought of a cyberattack on your tech start-up is keeping you up at night, you may be able to sleep a little more soundly if you learn the cyber security basics, while also reducing your exposure to cyber risk with.
With BizCover, you can go one step further by reducing your exposure to cyber risk with proactive cyber security measures such as Cyber Liability insurance (also referred to as tech insurance or start-up insurance). Give BizCover a bell on 1300 920 867 to learn more about how we can help you protect your tech start-up. Get covered in 10 minutes and get back to doing what you do best.
This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.
© 2023 BizCover Pty Limited, all rights reserved. ABN 68 127 707 975; AFSL 501769
