The Top 6 Risk Factors for New Businesses & How to Avoid

By George Otte


Not all of the challenges that you’re likely to face as an entrepreneur are avoidable. However, most can be contained or surmounted with foresight, planning, and resolution.

Here’s how to mitigate or avoid six of the most common risk factors for startups.

1. Lack of Understanding of the Market

Before you formally set your business idea in motion, you need to make sure you’re pursuing the right idea at the right time.

One of the most common causes of early-stage business failure is a lack of due diligence: market testing, product research, and especially competitor analysis. Your due diligence may reveal that you’re entering a crowded, fiercely competitive marketplace — or that you have a tailor-made niche practically to yourself. This alone could be the difference between success and failure.

2. Nonexistent or Unclear Growth Strategy

Once you have a clear understanding of your market, you need a clear understanding of how you’ll grow into that market.

“Growth strategy” sounds intimidating, but developing one is actually a straightforward proposition. Start with a pre-made template and fill in with specific, relevant information based on your understanding of your business and your market research activities.

3. Unclear Value Proposition


“Your company’s value proposition is the clearest possible distillation of its mission, values, and objectives.” — George Otte


The value proposition is a compelling message that answers the question posed by every prospect who considers giving you their business: “What can you do for me?”

If you can’t answer that question clearly, concisely, and persuasively, you may struggle to gain traction with your target audience.

4. Inadequate Resources

Most startups go years without turning a profit. You need to ensure that you have adequate funding to endure the gap between your official launch and your first cash flow-positive quarter.

Countless promising companies, including many with exciting, game-changing products, fail on their financial projections: They don’t have enough cash on hand to last until they’re profitable.

5. Difficulty Attracting and Retaining for Growth

Your company needs to attract and retain the very best employees. This is especially important if your work is highly specialized.

Create a fun, challenging, and exciting work culture. Think beyond the compensation, and while you offer attractive packages, also focus on fulfilling projects and opportunities.

6. Over-reliance on a Handful of Customers or Clients

At the outset, you’ll probably have a handful of reliable clients. As you grow though, be careful about relying too heavily on vulnerable revenue streams. Diversify your customer portfolio while investing on retention efforts as well.

If You Fail, Try Again

You’ve heard the saying, “If at first you don’t succeed, try, try again.”

Failure is a fact of life. Even those at the very top fail again and again on their way up the ladder. As discouraging as it may be to admit defeat, the most important thing you can do afterward is to dust yourself off and begin anew.

Eventually, you will succeed — if not at your current endeavor, then on some future project at some future date. If you can remember these six common pitfalls for new businesses, perhaps that date will come a bit sooner.


George Otte is a Miami-based entrepreneur and executive with more than 15 years of multifaceted business operations experience.