As startups transition into scale-ups, they often enter a period of rapid growth and heightened uncertainty. It’s a thrilling phase, marked by increased market traction, expanding teams, and bigger opportunities, but also a time when growing pains can be fatal if risks aren’t well managed.
Enterprise Risk Management (ERM) plays a critical role in this journey, helping organisations navigate the turbulence that accompanies scaling. For founders and leadership teams aiming to build resilient, sustainable companies, embedding ERM into their growth strategy isn’t just good practice – it’s essential.
Understanding the scale-up phase
Defining the ‘scale-up’ phase can be difficult. But typically, the scale-up phase consists of rapid, consecutive years of growth, reflected either in a larger number of employees, or greater turnover.
In practical terms, scaling up kicks in once a startup has validated its business model and is looking to expand operations, enter new markets, or attract larger investments.
But this leap from startup to scale-up introduces new layers of complexity. Common problems include:
Leadership: Founders and leaders may lack the skills required to manage the organisation’s evolving needs.
Operational challenges: Organisations may need to hire new talent and invest in critical business functions, while maintaining the quality of their products or services.
Market dynamics: Products or services may not address genuine consumer needs, or organisations may struggle against emerging and established competitors.
Financial instability: Investment is vital to build infrastructure and hire personnel, but improper management can cause cash flow issues.
Culture: Employees can experience burnout, disconnection, and loss of morale, impacting innovation and engagement, and hindering efforts to attract and retain talent.
As a company scales, the stakes get higher. For that reason, having some structure around how you think about and deal with risk is crucial. ERM helps growing businesses get ahead of potential issues, instead of scrambling to fix them after the fact.
How to embed ERM across your business
Formalising ERM doesn’t mean slowing down entrepreneurial instincts. Instead, it’s about structuring decision-making in a way that protects and amplifies growth. Here’s how scale-ups can begin:
1. Build a risk-aware culture
Leadership must actively champion risk management. A risk-aware culture encourages transparency, proactive thinking, and accountability across all levels of the organisation.
This consists of setting the tone at the top, talking openly about risks and failures, and celebrating calculated risk-taking aligned with strategic goals.
2. Appoint a risk champion or a risk leader
Start by assigning someone, even if part-time, who is responsible for coordinating risk-related activities. As the organisation grows, this role can evolve into a dedicated risk officer.
Having a risk champion can help to focus risk management activities. They can serve as a bridge between teams, helping to communicate complex risk information into actionable insights for the wider business.
3. Define your risk appetite and tolerance
According to the Institute of Risk Management (opens a new window), an organisation’s risk appetite describes the amount of risk it is willing to seek or accept in pursuit of its long-term objectives, including growth. By contrast, risk tolerance indicates the boundaries that should not be crossed, even in pursuit of those goals.
Using simple tools like risk appetite statements and risk registers, organisations can define their approach to risk-taking. This should include appetite and tolerance for specific types of risk (including financial, operational, strategic, etc.).
Potential factors impacting risk appetite include the financial stability of an organisation, the industry and regulatory environments in which it operates, and past experiences of risk-taking behaviour.
4. Develop a suitable ERM framework
An ERM framework can give organisations a more structured approach to enterprise risk management. At a minimum, the framework should include:
Clear risk policies and procedures
Defined roles and responsibilities
Basic tools for risk identification, analysis, and prioritisation, i.e. risk register
A process for escalation and mitigation
5. Conduct regular risk assessments
Regularly carrying out risk assessments can be a vital safeguard against potential threats, helping to identify risks before they develop into a wider issue, such as a regulatory failure or financial loss.
Risk assessments take the form of structured conversations around risk. These can be informal, but they should involve representatives from key business functions, including finance, operations, product, and compliance. Scenario planning can help to prepare for different market or operational challenges that may emerge.
6. Monitor and report
Monitoring and reporting are crucial for effective risk management, helping to drive iterative improvement and shape better decision-making. Organisations should track key risk indicators (KRIs), regularly update their risk register, and report findings to the leadership team.
This reporting process should be as agile as possible. Software solutions, such as dashboards or risk heat maps, can provide an efficient means to convey complex data.
7. Partner with a risk advisor
As your organisation grows, it helps to bring in an external perspective. Whether an individual or a company, engaging a subject matter expert can bring you fresh insight into the risks a business is facing.
A good risk advisor can help you to consider potential blind spots, stress-test your plans, align risk and insurance, and evolve your risk strategies as things get more complex. This can all the difference in staying resilient while scaling.
For more information, reach out to a member of our team.
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