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Creating a high-end company requires the ability to mitigate many variables. At the same time, risk-management skills give potential fund partners a real insight into you as a business leader. From product risk to market risk, and from financial risk to operational risk, disclosing various variables greatly affects your credibility as an entrepreneur.
Dismissing risks from your business plan may suggest that you do not believe what is there or that you are deliberately avoiding disclosing them. Risk is an essential part of the information that lenders are looking for. Investors are concerned about the balance of risks as business prices rise. You understand their needs and it is in your best interest to come up with a plan to reduce these variables.
Let’s take a look at the uncertainties of a new high-end business, how to create a framework for analysis, and the most effective way to disclose them to potential investors.
Related: 4 Types of Luxury Brand Leadership
How to deal with uncertainty when creating a high-end small business
In this uncertain time, creating a new high-end company requires the ability to “navigate now”, manage post-epidemic priorities, and shape the future. If established luxury brands face challenges ranging from expanding their customer base to corporate responsibility and sustainability for a luxury startup, the risks of a luxury startup can be divided into the following categories:
- Luxury market risk. This risk refers to whether there is sufficient demand for your high-value products and services. Conducting market opportunity analysis and sustainability research of the niche department helps to reduce market risk.
Competitive risk. A SWOT analysis helps you understand your strengths, weaknesses, opportunities and threats in the luxurious competitive landscape where your company operates.
Technology and operational risks. Can your team finalize product design within a set budget? Or by cutoff date? These variables are part of the operational risk and can be controlled through experience and careful planning. They directly affect your credibility as a brand and your ability to deliver on the brand’s promises.
Financial risk. For startups, the lack of a backup plan creates financial risk for investors and lenders. Prepare a strong business plan that includes a forecast, a financial plan for the next three to five years, and a risk-management plan to demonstrate your intelligence as an entrepreneur to seek funding and gain more confidence from potential investors.
Human risk: Human risk is the least predictable variable of any business. Establishing a clear vision and culture for your team from the start helps reduce these risks. The combination of 60% management skills and 40% style is, in my opinion, the perfect combination when hiring a luxury sales manager.
Legal and regulatory risks. Hiring a professional and holding the right attorney is not enough. Follow their advice to avoid legal and regulatory risks.
Systemic risk. Because of the risks that threaten the effectiveness of the entire market, you want to constantly develop and develop structures and processes to help your business survive.
How to express business risk with management plan
A powerful strategy to establish yourself as someone who has control over the business is presenting risk reduction solutions. If exposing your startup luxury business is a concern for you, go to investors with solutions to how you plan to mitigate variables. What steps are you taking to reduce the impact of the risks you have identified?
Risk management involves identifying key risk factors and studying possible ways to reduce the likelihood of events and impacts. A solid risk management plan enhances transparency, builds confidence and enhances understanding. It starts by classifying the risks, the probability of their occurrence and their impact.
Related: Why you should deal with risk management before you start hiring
A framework for classifying risks, their potential and impact
Risk management is about identifying what could go wrong with your high-performance small business operations and what needs to be done to minimize those risks. Risk management must be a combination of industry and science and entrepreneurial core competencies. Different skills such as creative thinking, analysis, forecasting and problem solving are needed to identify risks and how to best mitigate them.
A structure can be helpful for classifying different variables. All risks have two dimensions: probability or probability of occurrence and the impact or severity of possible consequences. A risk can be potential, possible or unlikely. Its effects can be acceptable, tolerable, unacceptable or unbearable. By combining these two dimensions into one matrix, you get different combinations of probabilities / effects. For example, if you have an alternative supplier, the risk of a supplier going out of business may be possible and tolerable. Or, it may be possible and unbearable if you have no other choice.
Assess your business risk
Adapting a risk management plan to your reality means identifying and evaluating the risks of running your luxury small business, evaluating ways to mitigate them, creating a contingency plan, communicating the plan and training your team, assigning tasks To do and monitor new risks. .
After identifying a new risk, it is important to ask yourself if the risk reduction benefit outweighs the cost. Your decision depends largely on your risk tolerance. And this is your personal. As a living document, your risk management plan should always be revised and updated.
Respecting your activities will help you to understand, anticipate, and respond efficiently and effectively to changes that are constantly happening or may happen.
Related: How best entrepreneurs manage risk
Long play: Provide superior brand promise
Risk management is essential because unexpected variables can not only negatively affect the investor’s fund decision but also the user experience. Ultimately, risk management helps you deliver on your brand commitment.
Your high-end brand that communicates and influences the lives of your clients is considered a brand commitment. Successful luxury businesses always maintain their brand commitment. Despite being variable and risky, being consistently led with what you can provide helps you manage customer expectations.
If you are in the early stages of development, you need to remember the position of your brand. If you build trust early and often, keeping your promises, you are more likely to have long-term success.