Effective Risk Management for Food Start-ups
Be it through online or the newspapers, we are constantly updated with the start-up news and trends prevalent around Start-ups. A new start-up is coming up almost every day and this generates tremendous interest in the Private Equity space, with companies vying with the other to invest funds at valuations. Additionally, the hunting grounds of these start-ups are the business schools and many of our young business school graduates are betting their nascent careers on the success of these start-ups. In this context, given the money and young careers invested, the need for Risk Managers in start-ups needs to be critically examined.
Risk Management in the Supply Chain for a food start-up
The need for Risk Managers can be easily demonstrated from a recent experience that a customer (Raj) had with a food start-up, and the role played by the founder as its Risk Manager. One evening Raj was taken by surprise when a friend announced that he was showing up for dinner with some of his guests who have come from abroad. In addition to what his cook could rustle up at the last moment he decided to order a Mutton Biryani from a new start-up in town (whose Mutton Biryani Raj had already tasted and loved). From buzz doing the rounds about this home delivery service, he had come to know that this start-up had been launched by a B-School graduate who had left the Marketing Department of a leading MNC to give his entrepreneurial spirit a kick.
The Biryani was traditionally packed in an earthen pot and his foreign guests looked excitedly at sampling this exotic Mughlai dish. The food was served and unfortunately his guests were extremely disappointed with the Biryani leaving most of the mutton pieces partially eaten. The flavours were great, the softness of the rice and spread was smooth, but many of the mutton pieces were undercooked. The next morning Raj called the ordering number to register his complaint. Within ten minutes of his call being disconnected, he got a call from the founder who was extremely apologetic about what had happened and promised to investigate and make up for Raj’s unfortunate experience.
A few days later Raj received another portion of the Mutton Biryani and it was just amazing, consistent in its flavours and spread and its pieces of mutton were properly cooked. Since the supplier had not sent a bill, Raj called to protest and this is what he was told. “Sir”, the owner said, “you have done me a great favour by registering your complaint, based on what happened, I tracked my supply chain from the procurement of the meat, and we found that my procurement team had not set up clear standards on the type, age and size of the lamb. Having standardised this, my customers are now going drooling over the dish, given the remarkable change in the quality of the mutton Biryani”.
This demonstrates that risk cuts across business processes, and greatly affects business value. Following risk mitigation tips help the food start-ups to maintain the quality of its product going forward, and ensure that its sale registers are constantly growing.
Efficient Risk Mitigation
A quick analysis of how the food start-ups can identify and analyse the risk, and eventually mitigate it effectively:
- Business process understanding – It is crucial for the authorities to quickly analyze the supply chain process and identify the missing quality controls in the procurement process
- A robust feedback system – the complaint should ring alarm bells in the company right up to the top, and the problem must be proactively analyzed.
- Setting up quality controls – Defined quality systems and standards must be established and implemented to monitor future procurement.
- Data Analytics – Quick analysis of the complaint logs and helps the management to approach the problem in a focused manner.
A start-up may believe that it has taken care of crucial issues — with e-commerce, agreements with key suppliers in place, a trustworthy website with smooth payment gateways, efficient taxi service integration, with licensed drivers, legally-owned cars, and other key checks –, it is well on the way to successful running, since they have taken care of some of the key elements in these businesses.
However, we have seen, that many other risks which could have been anticipated surface, and if these are not first assessed and then managed by a proper mitigation strategy, the survival of the business is at stake. This is where a Risk Manger will design the complete Risk Management framework, considering all possible risks.
For the benefit of all start-ups, the following are the key skill sets one needs to look for when hiring a Risk Manager –
- In-depth knowledge of business value chain – ability to understand and identify improvement opportunities to drive efficiencies across business processes
- Enterprise Risk Management – ability to understand and analyse risk, velocity of risk etc. at an enterprise level
- Analyze and interpret Big Data – ability to analyze data across business value chains like procurement, manufacturing, finance, etc. All these analysis are used as critical inputs by management for taking key strategic decisions.
- Manage Cyber Risk – ability to design controls to prevent cyber attacks in the day and age of rapidly-growing online businesses
- Manage Technology risk – ability to ensure confidentiality and integrity of critical business information
- Regulatory and Compliance Risk Management – ability to ensure compliance with regulatory requirements across locations, what with rapid growth and expansion across multiple geographical locations.
Originally published at: Startuppreneur