How to Limit Personal Risk When Starting a Business

You’ve got to be pretty brave to start a company. The failure rate is pretty high, it’s a lot of hard work, and, if it goes wrong, you might find that you’re in a difficult position. However, it’s probably not fair that people are punished for trying something and failing — the hit to their pride will be hard enough, must they really suffer in other ways too? We think not. There are ways that you can limit your risk when it comes to running a business. We take a look at a few ways how below. Incorporate them into your business strategies, and you’ll find there’s a reduced chance of your business having a negative impact on your life.

StrategyDriven Starting Your Business Article | How to Limit Personal Risk When Starting a Business | EntrepreneurshipDo Your Research

It all begins with your initial research. You could save yourself a lot of potential heartache and trouble by simply ensuring that what you’re trying to establish is, indeed, a good idea. Too many companies begin trading before figuring out whether there’s a demand for their products or services, who the competition is, and so on. If all the evidence suggests that it’s not a great idea, you should pull the plug.

The Right Set Up

It’s recommended that you limit the legal risk that you could face if your company isn’t as successful as hoped. You can do this by having the right set up for your company. As a business owner, an LLC offers the highest level of protection. Your business debts will stay tied to the business, rather than to your name. Similarly, if there’s an issue of negligence, then your assets could be at risk, even if you were only indirectly involved. It’s much better to set up as an LLC, rather than a sole proprietorship, with which your company’s debts would also be yours.

Stringent Quality Checks

Of course, while you can protect yourself financially and legally, there’s no hiding when it comes to your reputation. If your company is involved in an accident that was verifiably your fault, then it won’t just be your business that it affects – your name will be affected, too. As such, it’s imperative that you’re conducting stringent quality checks to ensure that everything is safe and high-quality. It’s when corners are cut and checks are not carried out when troubles can arise.

Legal Matters

You might think that everything is going smoothly for your business, only to discover that you’re in trouble with the authorities. Why? Because you were lax when it came to your company’s legal matters. Because of the threat that unlawful practices can bring, it’s recommended that you outsource the jobs to a law firm. They’ll make sure that everything is watertight.

Keep Things Separate

Finally, for your own sake, ensure that you’re keeping your business and personal finances separate. There are plenty of advantages to this, but one of the most important is that it makes it much easier to manage your money, and to ensure that you’re not screwed should your business flop.

3 Things All Business Owners Need to Know About Risk-Taking

As pivotal as it is to be systematic and strategic with everything that you do in business, you also have to be open to a spot of risk-taking from time to time. To ready yourself for when that time comes for you, you need to know a few very important things.

Here’s are three things that you, as a business owner, need to know about the taking of risks:

1. It’s okay to predict disaster as it’s only natural

A business owner you might be, but you’re still a human being. As a human, you are naturally and inherently biased towards the predicting of disaster. For this reason, every time you seek to take a risk, there will probably be a voice in your head telling you not to take it because everything is bound to go wrong.

First of all, you have to accept that this is your inherent bias and that you’re always going to be fearful — it’s okay to be like this, it’s just who you are. Second of all, you have to do all you can not to let your fears guide you or push you towards making decisions. Of course, if the bad does, quite clearly, outweigh the good in regards to the risks you seek to take (after you’ve taken some time to look at them subjectively), then, yes, steer clear of them. Never, however, let your natural desire to predict everything going wrong guide your risk-taking actions.

2. When it comes to taking a risk, align yourself alongside experts

There’s nothing wrong with asking for help at any point in your career, as two or more heads are always better than one. This sentiment rings especially loud and true when it comes to risk-taking, though.

Simply, whenever you enter into a field you’re not wholly sure about, before you take any kind of risk within it, you should seek to align yourself with an industry expert. By doing so, you will be able to tap into their expert knowledge and use it provide you with a better understanding of where, when, what, and how to take your risk. An example of this is you getting in touch with a high leverage broker before you seek to invest in the foreign exchange (Forex) market — by doing so, you’d learn about what it takes to trade in high volumes as well as how to perform investment risk calculations.

3. The ability to take a risk will help you to stand out

As not a lot of people in business are willing to take a risk, by doing so yourself, you will make yourself stand out. For better or worse, your ability to put caution to the wind will act as a differentiator between you and your competitors. For customers that like that kind of thing, that’ll put you at the forefront of their mind. Subsequently, this will bye you a one-way ticket to the front of your market.

If you feel like your business is stuck in a bit of a rut, why not try something new? More to the point, why not take a bit of a risk?

Why have a Risk Management Program?

Most people think of risk management as an insurance policy, the price paid to help prevent potentially negative outcomes from being realized by their company. Such a view leads to the conclusion that risk management is a business expense with a highly subjective value proposition.

We at StrategyDriven would suggest the insurance view of risk management is far too narrow. Instead, effective risk management enables a company to accelerate its business operations and to become more aggressive in the marketplace; approaches that in today’s fast paced environment is immeasurably valuable.

An analogy we use is that instead of correlating risk management to an insurance policy, leaders should think of it in terms of a high performance automotive breaking system. High performance breaks, such as those on racing cars, enable the driver to reach higher rates of speed while still maintaining the same level of safety as slower drivers whose cars have less capable breaking systems.

In the case of an effective risk management program, earlier warning of potentially adverse events occurs such that less costly adjustments can be made to avoid those risks; allowing the organization to speed its decisions and actions while maintaining the same risk profile as a company employing a less effective risk management program. Thus, an effective risk management system serves as both an insurance policy and a performance enhancer.

About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal, and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

Risk Management Warning Flag 2 – Normalcy Bias

StrategyDriven Risk Management Warning Flag ArticleIt can’t happen here…”

Sinclair Lewis (1885 – 1951)
American Novelist and Playwright
Winner of the Nobel Prize in Literature (1930)

…but what if it could?

Failing to adequately prepare for adverse events places an organization at significant risk. Indeed, such shortcomings have contributed to the fall of nations, demise of companies, and severe injury and death of countless people. Yet despite all of the evidence, many organizations today remain unprepared to deal with catastrophic events.

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About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

StrategyDriven Editorial Perspective – Creating Event Certainty, part 3 of 3

No event response plan is even worth the paper it is written on if not promptly and properly executed. And while an estimated 20,000 to 40,000 barrels (840,000 to 1,680,000 gallons) of oil gush into the Gulf of Mexico per day1, more questions arise about the appropriateness of British Petroleum (BP) and the U.S. government’s response to the crisis.

“A good plan violently executed right now is far better than a perfect plan executed next week.”

George S. Patton (1885 – 1945)
General, United States Army

Appropriateness of Action

After persistent questioning by the U.S. State Department Press Corp, it came to light in early May that while at least thirteen countries have offered to assist in the Gulf of Mexico cleanup the U.S. government is not accepting most of this support. The countries named by the U.S. State Department as offering support include: Canada, Croatia, France, Germany, Ireland, Mexico, the Netherlands, Norway, Romania, Republic of Korea, Spain, Sweden, and the United Kingdom. The U.S. State Department notice characterized the assistance as being offers that “include experts in various aspects of oil spill impacts, research and technical expertise, booms, chemical oil dispersants, oil pumps, skimmers, and wildlife treatment.” However, this notice also stated, “While there is no need right now that the U.S. cannot meet, the U.S. Coast Guard is assessing these offers of assistance to see if there will be something which we will need in the near future.”2

Over a month later, Fox News reported that the U.S. government has accepted some foreign assistance including:

  • Canada’s offer of 3,000 meters of containment boom
  • Three sets of COSEZ sweeping arms from the Dutch
  • Mexico’s offer of two skimmers and 4,200 meters of boom
  • Norway’s offer of 8 skimming systems

More important is what is not in use, namely the world’s best oil skimming ships from Belgium, the Netherlands, and Norway because of their non-compliance with the Jones Act, a 1920’s protectionist law aimed at benefiting labor unions. While the George W. Bush Administration waived the Jones Act requirements in order to accept foreign assistance following the Hurricane Katrina Disaster, the Obama Administration has indicated no such intentions in dealing with the BP Oil Spill Crisis.3

Failure of the Obama Administration to waive the Jones Act requirements and welcome Belgian, Dutch, and Norwegian oil skimmers to defend the shores of the United States is inexcusable. Compounding this issue is the lack of command leadership being exercised by both President Obama and Coast Guard Admiral Thad Allen. Admiral Allen is quoted as saying, “if it gets to the point where a Jones Act waiver is required, we’re willing to do that too. Nobody has come to me with a request for a Jones Act waiver.” As the Incident Commander, Admiral Allen is solely responsible to make the decision on whether or not to make a waiver request. He is responsible to exercise command judgment, not wait on a subordinate or outsider to provide him with his opinion or direction. With the oil leak ongoing, an estimated 39,525,000+ gallons of oil leaked4, 840,000 to 1,680,000 gallons more oil entering the Gulf daily, failing oil booms5, a marginally effective BP well cap6, and only 320,000 gallons of oil skimmed7 add up to the common sense solution that President Obama and Admiral Allen need to act now to waive the Jones Act and invite our global allies to assist with the Gulf Oil Spill recovery effort.

As with almost all events, these inappropriate actions only serve to intensify the severity of damage being done to the people, businesses, and environment of the Gulf States.

Timeliness of Action

Timely actions mitigate events and prevent the promulgation of adverse effects. In countries such as the Netherlands, oil companies are given 12 hours to appropriately respond to an oil leak before the government takes over and the oil company presented ‘the bill.’ This, however, is not the case in the United States where BP’s response has, in several cases, been inexcusably slow8 with no or delayed government intervention.

From the beginning, BP and the U.S government were slow to respond to the oil spill in the Gulf of Mexico. It was 12 days before the relief well, cited by many experts as the key to stopping the leak, was started.9 And once one well capping method is deemed unsuccessful, it is several days before the next method is tried.10 Clearly, BP nor the U.S. government appears to have been fully prepared to implement their oil spill response plans and once implemented are doing so far too slowly.

StrategyDriven Recommended Practices

Risk response relies as much upon the proper and timely execution of the mitigation plan as it does development of the plan itself. All too often, executives and managers become penny wise and pound foolish; focusing too much on the cost of the event’s mitigation rather than on mitigating the event itself. Those falling prey to this temptation typically find their organization’s mitigation timeline extended and their costs soaring.

Whether responding to an isolated incident such as the unexpected resignation of a key resource or a global impacting event like the BP Oil Spill, StrategyDriven recommends executives and managers consider the following event response principles:

Event Response

  1. Promptly execute the in place risk mitigation, transference, and avoidance mechanisms. The in place plan, conceived by the most experienced minds in a stress-free environment, cannot help alleviate the event’s negative impacts if not implemented – timely execution is critical to curtailing the damage. While executing the plan, allow flexibility to address unique circumstances.
  2. Always be looking ahead… assume failure and prepare to perform the next several response actions in parallel. Transitioning from one phase of a plan to another takes precious time. Assuming that current efforts will fail and prestaging the personnel, procedures, materials, components, tools, and equipment to executive several subsequent phases eliminates this wait time thereby accelerating the event response efforts which in-turn help reduce the overall negative impact incurred.
  3. Accept outside assistance as appropriate. Some outside assistance may be truly unnecessary, inappropriate, and distracting. However, legitimate offers of assistance from knowledgeable and experienced persons should be accepted so to shorten the response and recovery time frame and/or mitigate negative outcomes.
  4. Communicate constructively and proactively with the press, public, and stakeholders. People fear the unknown; and during times of crisis, the unknown creates vast unnecessary uncertainty. Remaining as transparent as possible by openly communicating known event conditions and mitigating actions as clearly and accurately as possible helps reduce the unknown and generates good will.
  5. Constructively assist in the incident recovery – even if the event is not your direct responsibility. As responsible members of the broader local and global community, we should reasonably assist others in the mitigation of significant events if we possess the talent, knowledge, methods, and/or equipment to do so.
  6. Seek legal counsel. We live in a litigious society. Whether the event is or is not your organization’s responsibility, it is often prudent to seek legal counsel to ensure your and your company’s rights are protected.

Final Thoughts…

For four weeks, we have commented on the failures of British Petroleum and the U.S. government in responding to the Gulf Oil Spill. Based on this example, we have recommended several actions be taken by leaders to ready their organization and better respond to significant events should they occur.

Johnson & Johnson’s handling of The Tylenol Crisis of 1982 stands as an example of effective crisis management. For a brief review of that event and Johnson & Johnson’s response, we suggest reading: The Tylenol Crisis, 1982 by Effective Crisis Management.11

StrategyDriven wishes to thank the people and companies of Canada, Croatia, France, Germany, Ireland, Mexico, the Netherlands, Norway, Romania, Republic of Korea, Spain, Sweden, and the United Kingdom for their offers of assistance in the BP Oil Spill recovery effort. We also extend our appreciation to the men and women of the U.S. Coast Guard and the Gulf States for their effort to contain the spill and protect our country from its harmful impacts.

Final Request…

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  1. “BP Oil Leak Rate Called 8 Times Worse Than Earlier Estimate,” David Muir and Bradley Blackburn, ABC News, June 10, 2010 (
  2. “U.S. not accepting foreign help on oil spill,” Josh Rogin, Foreign Policy, May 6, 2010 (
  3. “Jones Act Slowing Oil Spill Cleanup?” Brian Wilson, Fox News, June 10, 2010 (
  4. “How Much Oil Has Leaked Into the Gulf of Mexico?” Chris Amico, PBS, May 9, 2010 (
  5. “Containment boom effort comes up short in BP oil spill,” Peter Grier, The Christian Science Monitor, June 11, 2010 (
  6. “BP Oil Spill Cap helps slow Gulf oil spill: Will it work?” Cheryl Phillips, Examiner, June 6, 2010 (
  7. “Containment boom effort comes up short in BP oil spill,” Peter Grier, The Christian Science Monitor, June 11, 2010 (
  8. “Steffy: U.S. and BP slow to accept Dutch expertise,” Loren Steffy, Houston Chronicle, June 8, 2010 (
  9. “Spill relief well draws scrutiny, fears,” Greg Bluestein and Jason Dearen, Associated Press, June 13, 2010 (
  10. “’Top kill’ fails to stop Gulf oil leak, new plan readied,” The Economic Times, May 30, 2010 (
  11. “The Tylenol Crisis, 1982,” Effective Crisis Management, 2002 (