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Key Topics
Requirement
The purpose of assessment 1 is to identify and discuss the various risks and ethical issues to be considered when launching and investing in a startup. In fist two parts, discuss the various risks and ethical issues to consider as an entrepreneur and as an investor. Then, identify those that you think the top three you need to give priority to when launching/ investing in a startup.
Solution
INTRODUCTION
In the present scenario, effective management of business operations and activities has become vital for the long-term growth and sustainability of an organisation. Nowadays, companies are required to carry out appropriate risk assessment so that they can become aware of the significant risk confronting their plan, strategies and overall operations (Hanssens, Deloof & Vanacker, 2016). Based on the information collected through the risk assessment, it is required by businesses to develop suitable plans and strategies to mitigate those identified risks.
The present study outlines different types of ethical issues and risks which need to be considered at the time of launching and investing in a start-up. The viewpoint of entrepreneurs and investors on risk and ethical issues linked with start-ups are mentioned in this study. The examples of companies which are Genkstasy, Whitelane Textiles and Gloria Dulcie have been used to gain insight into different types of risk in start-ups.
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RISK ASSESSMENTS
Risk according to entrepreneurs
In the modern era, risk has become one of the most important aspects of businesses and organisations. In simpler terms, the risk is defined as the possibility of injury, loss and other unexpected circumstance. Business risk is defined as the situation in which companies generate less than the anticipated profits or causes losses. The significant impact of risk is in areas such as operations and profitability of a company (Henderson et al. 2015). According to the entrepreneurs, there are several risks which need to be considered while launching a start-up.
The first and foremost risk is a market risk in which companies are required to determine whether the market is ready for the entry or not. The fashion start-ups in Australia such as Miss Summer, Genkstasy, Whitelane Textiles and Gloria Dulcie are at great market risk. Most of the time, entrepreneurs fail to anticipate appropriate demand in the market, and this results in creating failure of the start-ups in the market. It is also suggested that before launching any start—ups, it is required by the entrepreneurs to conduct adequate market research. Such kind of research is suggested because it provides precious data and information about areas such as market trend and customer demand (Goldschlag et al. 2017).
However, it can also be argued that before launching any start-up, it is necessary for the entrepreneurs to make sure that the demand of products and services which they are looking forward to the offering is not seasonal.
Another risk which needs to be considered by entrepreneurs while launching a start-up is linked with operations. It is mandatory for the entrepreneurs to ensure that the business is set effectively to deliver products and services to customers (Wennberg, Delmar & McKelvie, 2016). Nowadays, the concept of starts-ups has become very popular especially among the young entrepreneur, and almost every start-up claims that they have certain innovation in their products and services. However, it can be argued that the rate of the start-up failure in Australia is 42% and every year the rate is growing. The failure of start-ups is a significant threat to the entire economy of Australia.
Davnet, 99dresses, PocketMail, CanYa, are some example of the start-ups which have badly failed in the Australia market because, in the long-run, the internal functions of these businesses were not competent enough to deliver products and services to customers. Management risk is another major risk which has been faced entrepreneurs while launching and carrying out their start-ups (Eberhart, Eesley & Eisenhardt, 2017). It can be expressed that tech start-ups such as PocketMail failed not because of market demand or lack of technology credentials but because of inexperience in the management. The new venture was not able to manage cash and other valuable resources and therefore failed in the market.
Risk according to investors
According to investors, there are wide ranges of risks which should be taken into consideration before investing in any kind of start-ups. For example, return risk is a common risk which should be considered by every investor. It is suggested that before investing money and resources in any kind of start-ups, the investors should carefully examine the risk of return associated with the investment which needs to be made (Ojala, 2015). Valuation risk is another major risk which needs to be considered by investor before investing in any start-up.
The investors are required to understand the fact that it is very difficult to access the valuation of a start-up and most of the time, the investor ends up overpaying for their investment. The funding risk associated with start-ups should be also considered by investor before investing their money in the start-up (Hull, 2014).
Every company whether big or small require funds for activities such as operations, new product development, marketing, expansion etc. In situations if the start-up is not able to acquire adequate funds then it will be required to delay its operations, marketing, new products development and expansion (Franks et al. 2014). In future, it is also possible that the start-up generates heavily losses and the money of investors comes to a stake. The disclosure risk is also an important risk which needs to be considered before investing in any kind of start-ups. Most of the time, complete information about operations and future plans are not disclosed by start-up because the operations are not developed fully and the trading history of company is also very short. When complete information about the company is not available, then the chances of losing money are very high.
ETHICAL ISSUES
Ethical issues according to entrepreneurs
Nowadays, ethics are considered as critical for long-term growth and success of any business enterprise. Ethics play a vital role because they help in carrying out differentiation between what is right and what is wrong. According to entrepreneurs viewpoint lack of infrastructure is the most important ethical issue which needs to be considered when launching a start-up. It can be stated that large corporations which are carrying out their business operations from the extended period can quickly comply with ethics (DesJardins & McCall, 2014).
The availability of adequate funds, resources and dedicated staff in large corporations makes ethical compliance very easy for them. On the other side of this, these features or such kind of infrastructure is not available in start-ups and therefore it ethical compliance becomes very complicated for them. The framework used to address ethical issues and challenges is also missing within start-ups and this further creates obstacles in terms of carrying out compliance with ethics.
During the initial stages, start-ups are more inclined towards covering up their cost of operations and generating higher profits. Start-ups entirely neglect the cultural and social impact of business operations and activities, and this can be perceived as another major ethical issue. The start-ups are required to make sure that their operations and activities do not have any negative impact on society and culture under which the business will be operating (Chell et al. 2016). Companies with good ethical practices have a well-defined set of rules, regulations, policies and procedures. At the time of carrying out their assigned task and activities, the staff members are encouraged to comply with these policies effectively and in the best possible manner.
However, most of the time, start-ups neglects the frame which is required to set regulations, rules and policies. During the initial stages, even the employees working in start-ups are not aware of the rules and policies of the business. Nowadays the entrepreneur’s neglects all the above mentioned ethical issues thinking that they will deal with them later on or once the start-up gets fully established (Goldschlag et al. 2017). On the contrary of this, it can be argued that along with the passage of time, the negligence of ethical issues and challenges result in making the entire situation worse for the start-up.
Ethical issues according to investors
According to the viewpoint of investors, it is required by the investors to identify whether the start-up in which they are investing has made ethics as a core value of enterprise or not (Shaw & Barry, 2015). It can be expressed that the chances of getting successful are higher in the start-ups which integrates ethics in business plan, objectives, mission statement and company’s policies. Before investing any kind of resources, the investors should be make sure that the ethics are integrate in the organisation’s overall plans and strategies.
Apart from this, the investors are also required to considered the fact that whether ethics are the part of start-up’s day to day operations and activities or not. The day to day operations and decisions of start-up needs to focused on resolving different ethical tensions (Chell et al. 2016).
On the other side of this, it can be argued that ethical issue such as conflict of interest is the most important component which needs to be addressed by investors before investing money and other resources in the start-up (Crane & Matten, 2016). The business ethics are concerned with several areas, functions and it is required by start-ups to consider all of them. Investors should focus more investing in the start-ups where effective policies and plans are developed to manage the conflicts of interest among different internal and external stakeholders.
TOP THREE RISK/ETHICAL ISSUES
Market risk, disclosure risk and negligence of ethical practices in core values and operations are the three major considerations which need to be taken care of while launching or investing in a start-up. The term market risk determines the overall degree to which the people in the market are ready to accept the products and services offered by the start-up. Companies or start-ups fail because they do not conduct adequate market research to identify the need and demand of people in the market (Graetz & Franks, 2016).
Apart from this, start-up also fails because as soon as they introduce their new and innovative product in the market, the demand for target market changes. In such kind of situations, massive losses and financial setbacks are encountered by start-ups, and this is perceived as a significant threat to the long-term success and growth of the company. Increasing competition in the industry is also a part of market risk which is encountered by start-ups.
Intense competition within the industry makes it very complicated for new ventures to attract customers and capture the market share which is dominated by existing players. Thus, it is perceived that market risk is a significant risk which needs to be considered by while launching and investing in a start-up (Hanssens, Deloof & Vanacker, 2016). On the other side of this, start-ups do not disclose complete information about their plans and operations during the initial stages, and this is an important thing which needs to be considered by investors.
The chances of losing the invested money are very high in situations when the investment has been made without having proper knowledge and data about the start-up (DesJardins & McCall, 2014). Ethical issue such as negligence of ethics while developing company’s policies, mission, vision, objectives and strategies is another vital factor which needs to be considered while launching and investing in a start-up. Nowadays, ethical practices have become critical for companies to ensure sustainability and growth in the long-run (Hillson & Murray-Webster, 2017). Therefore, it is the responsibility of entrepreneurs to make sure that the ethics are integrated within practices, aim and policies from the beginning of the start-up.
CONCLUSION
From the above study, it can be concluded that managing business operations and activities is not an easy task for companies. It is required by organisations to carry out effective assessment of the different risks which have the potential to affect the operations, profits and activities of an enterprise. It can be also inferred that market risk is one of the most crucial element which needs to be considered before launching or investing in any kind of start-ups.
The changes in need and demand of customers and increasing competition in the marketplace can create several kinds of obstacles in overall growth and success of the start-up. It can be concluded that risk related to valuation, disclosure and return should be effectively accessed and well examined by investors before investing their money in the start-ups.
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