6 Areas where contingency plans benefit entrepreneurs

The best strategies developed in creating a startup only lay the foundation of the business.The extensive preparations and research often do not cover unexpected events.Your business plan is road map but planning for detours is not possible unless you can predict the nature of the detour.This is a great reason to always consider the “what if” scenarios for those areas where the greatest likelihood of problems may occur.Proper contingency planning reduces the number of times you are surprised and may leave you with an executable plan if a problem arises.

Contingency planning requires that you consider every option where deviations from your desired path may occur followed by creating an executable plan to cover the event should it occur.You may elect to modify the plan or fine tune it, but you reduce the time required to take action and more thought was devoted to creating the final change in direction.Sometimes, your “PIVOT” must be rapid and at others, more time is available.Considering, in advance, where a pivot maybe required, improves the odds your pivot will be effective and not make things worse.

A few areas that surprises may occur and a contingency may help lessen the effects are:

1. Investors: Investors can review and tell you they wish to invest. That money is not yours until you close and the money in the bank. Believing you have the financing done and halting the search for funds is something you should carefully consider. Investors do back out, or give you a term sheet that causes serious problems. Some investors require constant handholding and extra care. This takes significant amounts of someone’s time: likely yours! You may require future investments, but your investors have anti-dilutions provisions, liquidations preferences, or refuse to sign lock up agreements. This results in extra negotiations to resolve the concerns of new investors. Try to make sure you understand your investors and develop a communication plan to keep them as content as possible. Consider your alternatives when negotiating to take their funds.

2. Service providers: Losing your manufacturing partner or a key service provider can cause a serious setback. Identifying alternates and having tentative agreements may lessen your down time. Establishing more than one provider or manufacturer can reduce problems if you lose one of them. The costs may be greater, having multiple providers can create greater management issues, but you reduce your downside.

3. Personnel: Key personnel are difficult to replace in a reasonable time. Networking and being aware of possible replacements may help. Finding ways to keep your team motivated requires development of plans that reward them or provide recognition to them. You may wish to have a proactive strategy of rewarding the employees along with identifying back up people or services to keep your programs moving.

4. Changes in Markets: Capital markets and markets for your products can suddenly change. The ability to raise capital can dry up because of investor concerns in general. The IPO markets the last several years have been BAD, for example. Your product markets may not turn out to be as expected or a competitor can launch a product that restricts your sales. Trying to keep extra cash on hand to evade the storms may just save your company. Identifying and tracking the competition allows you to alter your launch strategies.

5. Time and cost overruns: It usually takes longer and costs more than your projections. Good communication with your investors helps manage their expectations. Planning to take enough money in a financing to extend your window before running out is worth consideration.

6. Creditors: The one thing you can count on is that the creditors want their money back! The personality of the creditor can vary from being extremely aggressive to passive. Finding a way to manage the creditors and prevent them from being overly aggressive is a tightrope walk. Develop plans for anything imaginable that may come your way. The one thing you can be certain of is it will not be pleasant.

These are just a few examples of things that can cause problems.It would be great to see some of the other areas you have experienced by leaving your examples in the comment area.

You can follow Taffy Williams on Twitter by @twilli2861 and you can email him with questions at twilli2861@aol.com or contact him via company contact info in the website. More Startup information is contained in his personal blog.