Common Business Risks Faced by SMEs and Startups

Having a business is not as easy as you can imagine. Though it may sound very exciting, running and ensuring that it stays sustainable is another story. According to recent studies, the failure rate of startups is around 90% where 20% fail in their first year, 30% in the second year, and around half or 50% only remain operational after 5 years. 

This is because of the several factors that affect our businesses. In reality, there are just so many things that you need to consider in order to make one's business successful. It's doesn't end by simply making a sale or coming up with a great marketing strategy. 

Now, let me make it clear that we are NOT trying to discourage you from taking that leap in starting your own business because just like what Mark Zuckerberg said, "The biggest risk is not taking any risk." 

Instead, this is to inspire business owners and aspiring business owners how we can be smart about the risks that we are taking. As business owners, it is our responsibility to help minimize or make it safe to take the said risks. 

What are the common business risks faced by SMEs and Startups in the Philippines? 

1. Business Interruption - According to the 2020 Allianz Risk Barometer, 42% percent of the respondents mentioned business interruption as a major risk factor for Philippine-based businesses. Indeed, the pandemic has provided us a clear insight into what can happen during business interruptions and its possible causes. 

For one, government regulation and mandate can trigger business interruptions (e.g. quarantine lockdowns where offices and stores are asked to temporarily close or manpower is prevented from reporting to the workplace. 

There are also supply chain distribution and logistics issues that can also halt the daily operations. 

What can we do about it? 

Having a risk management plan which includes alternative solutions (a.k.a Plan B) can help. Taking immediate action to cut back the risks as soon as they present themselves is the key. 

For example, in supply chain issues, businesses can readily prepare a list of alternative suppliers/ sources or identify substitute materials. Prioritize local suppliers if possible in that way challenges in logistics can be minimized. 

For manpower concerns, check for alternative work arrangements. You can even opt to outsource if needed. 

2. Fire and Natural Disasters - The Philippines is considered to be one of the most vulnerable countries in the world subject to calamities and climate change. The country gets hit by at least 20 typhoons annually and no matter how frequent it happens, this is something that we should not take lightly.  We have seen the devastation caused by Typhoon Yolanda in 2013 and the most recent Typhoon Odette in December 2021. 

Aside from typhoons, we are also prone to earthquakes, floods, and even fire. With 5 active major fault lines in the country, the possibility of the "big one" is not impossible. In 2020, the Bureau of Fire Protection reported more than 14,000 fire incidents that destroyed billions worth of property. 

Sadly, these types of incidents can happen at any time. 

What can we do about it? 

To avoid financial losses with things beyond our control, getting insurance for property damage caused by typhoons, fire, lightning, flood, and earthquake helps minimize risks.

Initially, I thought that acts of God or damages caused by natural phenomena are not insurable but I was wrong. There are actually insurance products such as the CL Microbiz Protek Jr. that can help protect our properties. The best part? It's actually affordable and the coverage is quite comprehensive. 

Aside from its coverage of property damage, it also offers Personal Accidental coverage, Burglary, and Robbery.  

3. Cyber incidents - As we transition to more online services and digital platforms, the threat of cyber incidents, which include cybercrime, IT failure/outage, data breaches, fines, and penalties is a primary concern for many businesses. 

What can we do about it? 

In order to protect your business, you need to invest in both your infrastructure and human resource. Install a firewall. Make sure to keep your software and system up to date.

It is also important that you train and educate your team on how to avoid and handle cyberattacks and data breaches. Ensure implementation access management and security (e.g. usage of passwords)  as this helps safeguard your cybersecurity. 

Lastly, back up your data to avoid major downtime and loss of important data. Businesses should realize that data is actually a major asset of the company even if it's not reflected the financial statements. 

Despite all of these risks, don't be discouraged to make that big idea come to life. Start your business. You have the power to minimize the risks and keep in mind that the world is rooting for you.