Starting a business naturally comes with a lot of risks, even in a country with a thriving startup ecosystem like Singapore.
In this article, I will outline the risks that entrepreneurs commonly face, specifically in Singapore.
In a world like ours where technology advances so rapidly, the markets evolve constantly. In such a competitive space, entrepreneurs must strive to stay relevant. Whether it is a product or service that you are offering, it is crucial that you have a profound understanding of the market which you are competing in, especially pertaining to the behavior of your potential customers. All this should be done before you launch your business because errors in the interpretation of your market’s needs are extremely costly to correct. Thus, a lot of time and effort must be invested in thorough market research which will enable you to tap the right opportunities on-time and on budget while reducing risks.
When starting a new business (depending on the type), you probably need a large sum of funds. At the start, a lot of financial risks are accumulated when raising capital to build a business from the ground up. However, it does not just stop there. To continue sustaining business operations for the foreseeable future, more funds must be secured. This is why plenty of startups continue to lose money even after a few years in business. More and more growth has to be acquired to reach an economy of scale, and even more funds have to be raised to sustain that growth. For example, a t-shirt apparel company has to keep investing in inventory. Many first-time entrepreneurs overlook the possible costs associated with the operational costs of the business. Some of the important financial risks, be it internal or external, change in prices of commodities that lead to an increase in the cost of production, interest rate hikes, asset depreciation, and clients defaulting on payments.
In Singapore, this risk becomes larger because the cost of running a business in Singapore is very high. If you are a business that employs people in the service and retail sectors, there will be a high labor cost. Singapore has been steering its local workforce towards higher end occupations in sectors like finance, medicine, biochemistry, and engineering. Thus, there is a labor shortage in the tourism, retail, F&B, and hospitality industries, resulting in potentially higher costs for businesses since there is a lower supply of willing workers. The overhead cost will be high as well since land is scarce in Singapore. This causes retail and office space to have extraordinarily high rent. Keep in mind these two points if you do decide to start a business in Singapore. Therefore, it comes to logic that a good business to start is one that can potentially avoid labor and overhead costs as much as possible. Such businesses would mostly be based online.
Similar to market risk, thorough research on the business landscape must be conducted to lower product risks. Entrepreneurs must be able to convey how their product can fit their customers’ needs in the context of the business landscape. What is product risk? It is the risk of not being able to produce or deliver the product to the market on time and within the budget requirements of the business. Other risks such as the quality of the product not meeting expectations can arise as well.
There are risks associated with starting any kind of business. Such risk may vary is separate degrees of the market, product, and financial risks. The truth is that some risks can be mitigated while others cannot be controlled. The most important thing, for entrepreneurs, is to gain a clear perspective on the risks that you could face and find creative and practical ways to meet the challenges that will definitely come your way.