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The German startup scene has contributed substantially to the country’s economy. In fact, an E-Commerce Germany News article on startups shows how these businesses raised a notable €8.1 billion in 2021 alone. However, the same success has been harder to come by recently. According to a 2022 German Startup Association survey, uncertainty among startups skyrocketed due to the risks brought by the country’s economic and political turmoil.
Given Germany’s current economic outlook, startups can encounter various risks that impede their cash flow—including low cash reserves, steeper competition, and supplier-related challenges. As such, it’s crucial to adopt strategies allowing these businesses to resolve risks adeptly.
Below are three that you can take inspiration from to mitigate startup risks:
1. Employing big data tools to gather competitor insights
Digital transformation is essential for startups to achieve business success. However, most German companies fail to pursue digital transformation due to their inadequate IT infrastructure, leading them to contend with risks like inefficient operations and missed market opportunities.
To circumvent such challenges, a 2022 Business Wire feature on Germany’s automotive industry shares how numerous enterprises have invested in software development. Software development allows automotive companies to resolve risks brought on by stiff competition. This application largely hinges on big data, which enables firms to consolidate key market insights and apply them to their business strategies.
That said, utilize big data tools such as Semrush to gather information about your competitor’s pricing changes and market moves. In addition, our post ‘Before Setting Sail Startups Need to Know the Ocean’ explains that competitor analysis should always be up-to-date. Because markets are ever-shifting, it’s vital to stay ahead of the curve and conduct competitor assessments regularly.
2. Leveraging automated and scalable solutions to ensure extra cash reserves
For startups, having additional cash reserves is essential for business continuity. However, that’s easier said than done amidst issues like low revenue or unforeseen expenses. If you’re interested in learning how to maintain extra cash reserves, take note of how the banking industry adopted Basel III when they didn’t have enough capital, for example. Basel III, a set of international regulations, required banks to maintain capital buffers (or additional reserves) to overcome times of recession.
Now, with Basel IV rolling out last January 1, 2023, banks are mitigating the risk of not having a capital buffer using automated, scalable Basel IV compliance solutions. Such solutions help banks gather high volumes of data, examine potential risks to their revenue, and apply the necessary calculations to produce sound capital planning decisions. Not to mention, they likewise automate risk reporting so that banks can generate informed business strategies.
If banks do all this to mitigate that particular risk, so should you. Ensure that your startup doesn’t run out of capital by utilizing an expense reporting software like Brex, which enables you to cut costs where possible. Because the software allows you to create budgets, you can recognize where you’re putting most of your cash towards. If there’s a need to downsize your workforce or switch suppliers for cheaper alternatives, then you can do so to guarantee enough cash reserve for emergencies.
3. Ensuring your supplier conducts ethical operations
According to the 2022 World Business Outlook report, 56% of German companies identified supplier-related risks as one of the biggest threats to their business success. Specifically, suppliers who conduct harmful and exploitative practices can tarnish your startup’s reputation.
Fortunately, the supply chain industry is increasing compliance with human rights and environmental standards. Just last January 1, 2023, the new German Supply Chain Due Diligence Act came into effect. This prompts companies to identify and assess violations within their supply chain and develop risk management, monitoring, and reporting strategies.
Taking a page from the supply chain industry, assessing if your supplier’s operations are conducted ethically is crucial. To do so, consider enlisting providers that allow you to monitor your suppliers’ facilities remotely. Aravo is one such solution that can automate supplier business impact assessments and alert you to potential issues. Afterwards, it can manage and deliver your response, whether that be through mitigation or connecting with alternative suppliers.
Risks come as part and parcel of every startup’s journey. Hopefully, the abovementioned strategies can offer valuable insights into reducing said challenges.
Ethan Lucas
Formerly a software engineer, now travels with his laptop wherever he goes. When he's not on the road he lives in Lincoln, Nebraska, with his two dogs, Lars and Tim.
