BUSINESS PROTECTION STRATEGIES
Managing a business requires a delicate balance between risk and return. Successful businesses are those that are best able to balance defensive strategies, which are focused on avoiding downside risks, with aggressive strategies, which embrace risk and make the most of the opportunities it presents.
This may often be an instinctive rather than a formulaic process, but many entrepreneurs struggle to stay on this tightrope in the face of rapidly shifting macroeconomic dynamics and increasing competition. According to a survey of 2,500 Singapore SMEs conducted by DP Information Network, the annual SME failure rate in 2011 was 12.5%.
The key question boils down to: "How well protected are you against relevant risks?" We believe that, in the future, success will require more than just the continuous application of traditional risk management tools – it will also require a shift in mindset and focus.
Protecting your "second chance"
Access to financing and credit has always been the key to SME survival and growth: it is imperative for entrepreneurs to maintain liquidity and solvency at all times because any default could put the business at the mercy of its creditors and effectively reduce any value that the entrepreneur has built up to nothing.
The chance of restarting a business when the opportunity arises is significantly diminished if back-up measures are not put in place. Asset protection mechanisms, which enable entrepreneurs to insulate important assets from creditors in a legal manner, should therefore be the first line of defence.
Successful entrepreneurs are increasingly employing business liability insurance and trust structures as part of their legitimate asset protection strategies. A bespoke business liability insurance plan offered by an established insurance company can protect against potential liabilities or claims arising from lawsuits or debts. Likewise, trust structures can be created to hold non-business related assets and shield personal and family assets from claims by creditors.
Protecting your knowledge and ideas
Intellectual property (IP) rights are another key battleground for business protection. If IP is a critical part of the business model, then any infringement of or challenge to those rights must be defended robustly. If inadequately protected, the costs of IP enforcement or litigation in respect of legal liabilities or loss of revenue from IP assets can be devastating.
Sound preventive measures are generally the most effective method of protecting your business from IP related issues. These can be as simple as IP registration of your patents, trade marks or designs with the Intellectual Property Office of Singapore (IPOS) or with any foreign IP rights authorities if part of your operation is located overseas.
With a substantial proportion of Singapore SMEs venturing into overseas markets, particularly into emerging economies like China and Indonesia, IP protection may not be straightforward. Many such countries lack effective IP regulation or enforcement processes and, as a result, instances of IP infringement may be frequent and extensive.
In such cases, SMEs may need to shift their reliance away from the local regulatory system towards a more comprehensive IP rights protection strategy that involves multiple stakeholders in the market. In China, for example, a strategy that includes consumer education, brand building and collaboration with local partners may be more successful in safeguarding IP rights and revenue streams, particularly in relation to imitations and trademark thefts.
Protecting your "gigabytes"
As the use of cloud technology and digital space expands, many SMEs are increasingly interacting with both their clients and suppliers online. Web-based technology and mobile applications are also receiving growing support from investors, government sponsors and end-consumers. In July, for example, Singapore online grocery startup RedMart raised US$23 million in a series B round led by the venture arm of game publisher Garena, with participation from Facebook co-founder Eduardo Saverin and first-time investors SoftBank Ventures and Visionnaire Ventures.
However, as important information like customer database, transaction details and email correspondence is centralised onto a single server, so it becomes increasingly vulnerable to system failure or even external attack. If the server is compromised, then both established commercial formulas and business development efforts could be stopped in their tracks. Worse, as Sony Pictures has found to its cost, external hacker attacks can turn into a public relations fiasco.
The complexity of your data security protection plan will depend on both the nature of the business as well as its scale. A simple backup and recovery system may suffice in the context of a business with a simple website but compound, partitioned servers with layered failsafe systems may be required for more complicated systems that stretch across multiple regional markets and multiple user groups.
Part of the same puzzle – business survival and growth
These three issues addresses above are all pieces in the same puzzle: they are integral parts of a progressive business continuity plan or enterprise risk management framework that should ensure business resilience. Each component represents a risk that must be balanced according to the chance of occurrence and the degree of impact – and that balance may change at different times in the SME lifecycle.
No matter what stage your business has reached or what industry your business operates in, structuring an appropriate business protection strategy can be paramount to its sustainability. Developing a business continuity plan is not necessarily costly – it can start on a scrap of paper – but it must be an ongoing process. The amount of depth and complexity required will depend on maturity and scale of the business. More importantly, identifying what is critical to the survival of your business will determine the effectiveness of the plan.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
