After 25 years of helping more than 450 clients in the life sciences industry, I have plenty of war stories about what can happen to startup companies.
Like the time a device company startup was shipping a $100,000 load of products to a distributor and the train derailed, destroying everything. No insurance.
Or the time another startup company’s contract manufacturer had a fire that shut down production, leaving the startup unable to fill critical orders. No insurance.
Or the time a startup drug company entered the European market without telling their insurance broker (me), got sued and then wondered if they were covered. Yes, but not in Europe.
I could go on, but you get the picture. When you least expect it, something can happen to slow your momentum or even put you out of business. Life doesn’t have to be this way. Here are the five steps for avoiding risk-related accidents, mistakes and mishaps:
- Recognize that risk exists and be open to discussion. It’s not if something will happen, it’s when. No company is immune to accidents, mistakes or mishaps. No matter how much money you have in your accounts, one mishap can explode your carefully calculated burn rate. You avoid unnecessary costs; why not make avoiding unnecessary risk a priority?
- Identify exactly where you’re vulnerable. It’s better to know your risks before they become costly liabilities. A thorough risk assessment can pinpoint immediate and even longer-term vulnerabilities and help you develop strategies for mitigating risk through policies, procedures, and protection (insurance).
- Recognize that insurance—and insurance brokers—are not commodities. Life sciences are very different from other industries. Before doing a risk assessment, make sure you have a broker who is qualified to help. Companies will spend painstaking amounts of money and time selecting the right consultants, accountants and lawyers, but have no problem randomly pulling a few names off the Internet and getting quotes. Invest time in finding a broker with experience in your industry to do the assessment.
- Don’t procrastinate. Do a risk assessment now. You don’t have to purchase insurance, but you should know your risk.
- Use the risk assessment to guide insurance decisions. The worst thing a startup can do is be reactive rather than proactive. Case in point: A startup I know landed a huge contract with a group purchasing organization. Buried deep within the contract were insurance requirements. The startup signed the contract without knowing the cost of coverage, making a $50,000 mistake. A risk assessment would have helped identify potential issues like this and eliminated costly surprises.