As an entrepreneur, doing business is challenging enough – with expected hurdles like raising capital and cash flow management to sustain growth. Naturally, entrepreneurs are a breed built with a high risk appetite: navigating potential risks is extremely important for those looking to build lasting enterprises. Here are the most common business risks that entrepreneurs should keep in mind.
Strategic Risk:
An enterprise’s strategy is the guiding principle to success in that once a solid strategy is in place, processes automatically become simplified. There are very many risks associated with strategy; these risks can be presented from either external factors such as an economic recession or internal risks such as poor corporate governance.
Internal stakeholders can be the weakest link in an enterprise’s strategy – insider trading, harassment allegations and a series of scandals brought Nigerian tech start-up Flutterwave to its knees earlier this year as the company’s CEO faced a series of allegations putting to question the company’s values and legitimacy.
On the other hand, external factors can play a major role in an enterprise’s strategies. Harder to mitigate and control, these risks can take the form of damage to your corporate image, reducing trust in your enterprises and destroying value. Consider the infamous OJ Simpson trial of 1995 – executives at Louis Vuitton were rattled as headlines of the trial traveled throughout the world. The bag that Simpson allegedly used to flee the scene of the crime was a Louis Vuitton Garment bag.
As climate change becomes a priority for many enterprises and organizations, a lack of preparation to make changes to strategy with consideration to Sustainable Development Goals (SDGs) can reflect poorly on an enterprise’s long term sustainability strategy – consumers nowadays are extremely conscious and expect their favorite brands to lean into the changing climate, equality and justice worldviews that have now become prevalent.
Financial Risk:
Perhaps the most daunting risk to entrepreneurs and arguably any business; no one is impervious to facing money problems and that’s why risk assessments and weatherproofing is essential for entrepreneurs.
The annual inflation rate in Kenya rose to 7.9 percent in June 2022, breaching the upper limit of the Central Bank of Kenya’s target range of 2.5 percent for the first time since August 2017. This increase has made critical inputs like energy for the transportation industry rise, causing a ripple effect in many industries.
Inflation however, is something very hard to control as an entrepreneur. Internally, accounting risks where errors are continually made, misrepresenting the true expenditure and revenue of an enterprise.
Another financial risk is investment risk – the risk of change in value of investments. Consider Kune Food: after receiving 1 million dollars in funding in 2021, the Kenya based cloud kitchen closed operations barely 1 year after their pre-seed funding. Kune’s CEO cited a rise in commodity prices and an inability to sustain growth because of their pricing model. All these factors prevented them from receiving another round of funding from investors, delivering the kiss of death to the promising start-up.
Marketing and Sales Risk:
Building a brand takes years of careful decision making and strategy that positions an enterprise as either, wholesome, luxury, eco-friendly, affordable, stylish, or any other distinguishing adjective put in place to create an appropriate association. Brand value risk is when the value of a brand begins to decline. This can be caused by a tern refusal to shift values to evolving worldviews, and the ever looming threat of market competition.
A good example would be Victoria’s Secret, a once hallmark brand in the American Fibre. Their refusal to be more inclusive when choosing their models slowly deteriorated their brand and allowed for more forward thinking competitors to take their place.
Operational Risk:
With the current global supply chain crisis caused by the Russian invasion of Ukraine and Covid-19 cases halting operations in many key production regions, many entrepreneurs and business owners are struggling to supply goods and services to consumers. This risk is particularly difficult to navigate and pushes many suppliers to think of solutions less reliant on the unpredictable global supply chain.
One of the biggest product recalls in history serves as the perfect segue to another operational risk – product liability risk. In 2016, Samsung’s Galaxy Note 7 was making headlines for product overheating and explosion, resulting in a recall of 2.5 million Galaxy Note 7’s. This recall cost the South Korean electronics giant at least 5 billion dollars.
Information Technology Risk:
On October 4th 2021, the world got a taste of life without Facebook, Facebook Messenger, WhatsApp, and Instagram after Meta suffered a major blackout on these platforms for six hours. This outage affected businesses the world over, and out to question the stability of Meta’s services.
Although not as bad as their outage in 2019 which impacted the platforms for 24 hours, Meta has since then come under fire by advertisers seeking answers as to why these outages occur. Meta made an announcement shortly after stating the October 4th outage was caused by a sophisticated hack or DDoS (Distributed Denial of Services) hack which can be categorized as an information security risk.
Human Resources Risk:
As major tech juggernauts expand their presence into Africa, local tech enterprises are feeling the heat of talent management. Companies like Microsoft and Google are attracting local talent away from growing enterprises unable to maintain their top talent who are in search of greener pastures and more attractive compensation and benefits packages. These mass resignations put enterprises at risk and leave them with bottom tier options who may create a hiring risk whereby the wrong candidates are hired forcing an enterprises to revert back to the costly recruitment process.
Compliance and Legal Risk:
Failure to comply with laws and regulations is a slippery slope; if caught breaking the law, the legal scrutiny, fines and associated penalties can bleed an enterprise dry.
Companies plagued by compliance issues rarely make it out alive.
Catastrophic Risk:
An irresistible compulsion or superior strength, popularly known as force majeure is a risk that can manifest itself in many forms. The Covid-19 pandemic which affected enterprises throughout 2020 and 2021 wreaked havoc on the global economy; many entrepreneurs were forced to close shop and explore other business opportunities. Most affected were airline companies, and the hospitality industry as travel and leisure activities were restricted by strict Covid-19 regulations, lockdowns, and curfews.
The Enterprise Development Programme dissects all these risks, challenging entrepreneurs to have a 360 vision of the various possibilities and potential risks their enterprises may encounter.
Article by Katherine Keango
Would you like to share an article? Write to us at sbscommunication@strathmore.edu
Share This Story, Choose Your Platform!
Your journey to business excellence starts here. Subscribe today and be at the forefront of innovation and leadership.
