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I've been reading about startups and entrepreneurship, and the resources that I've liked the best (the lean startup camp) don't seem to address risk management planning.

I'm wondering if formal risk management plans provide value to a startup, or, if they are documentation overkill in the agile sense?

I found a thread that says that agile development methodologies have implicit risk management planning built throughout (http://www.infoq.com/news/2009/01/agile-risk-management) but this seems technology-centric and I wondered if the same would apply to lean startups?

Do formal risk management plans add value to a startup?

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4 Answers

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In my opinion the value of business plan style documents is that they make you think about all the different issues. I think you will get value from identifying your risks and how you will mitigate them, making it a formal plan I think is less valuable particularly for startups where you are likely to pivot regularly and your documents may quickly become redundant.

SWOT analysis, Porters 5 forces, drawing your values chain are also useful tools to facilitate your thinking.

If your raising funding/writing grants, formal documents may add value for you depending on where you want to get your money from, however I would do that analysis when you want the funding.

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Thanks. Aside from the entire startup, what about project-specific risk management plans? If you know that a marketing launch campaign is likely to be similar despite a pivot, would you still assume there'd be value to this (or any other) project-specific risk plan? – risky_business Dec 6 '10 at 22:55
without more information its hard to give specific advice, what sort of startup are you? if your building a product then get your product to market via MVP (en.wikipedia.org/wiki/Minimum_viable_product) yesterday so your customers can start giving you feedback. If your a service based business then identify your valuable customers en.wikipedia.org/wiki/Pareto_principle. I would strongly suggest avoiding splitting your focus its better to do one thing really well that some people love than 10 things ok that no one cares about. – Ben Dec 7 '10 at 1:11
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I'm running a startup for the last 2 years ( soon it won't be a startup any more :) ) and I think you need to be aware of risks, and in my book there generally only one risk "When are you going to be our of money?" other than that the whole thing is full of risks, you just take your chances and go with the flow.

I think 95% of classical risk management doesn't apply to startups as startups are full of risks and chances that you are going to fail is quite high anyway.

I'm talking about non VC money startups, if you have more than $2M+ investment your priorities can change and risk management can be quite important and after all YMMV

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Formal risk management plans are overkill for big business even. The agile approach: Nay sayers come a dime a dozen. Find some and ask them why they think your business will fail.

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up vote 0 down vote

Startups are an exercise in calculated risk taking. The plans should always access risks, even if you don't formally document everything.

For certain markets, say enterrpise risk software - the customers will ask for a disaster recovery plan, key man insurances, escrow account for source code...essentialy want yu to mitigate the risks in your venture.

Founders should annually do a risks analysis and see how best to avoid them. Such planning is fairly easy and seasoned advisors will help you get this done.

Insurances, IP protection, over exposure to a contract or situation, natural disasters etc can all be less severe if planned for...and no, it does not costs sacks full of money.

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