Corporate risk management: it may not be the sexiest part of launching a startup, but it could be the difference between success and failure.
It’s hard enough to stay afloat as a new business without having to worry about issues like employee fraud and cyber attacks. When it comes to helping founders protect their businesses, serial entrepreneur Ivy Walker is an expert.
She launched Helios Digital Learning, which uses storytelling to teach ethics to business professionals and students, and AskCoda, a risk management and compliance solution for small and medium-sized businesses. Her book Twelve-Minute Risk Management: Strategies and Tools Small Business Owners Need Right Now to Navigate Today’s Business World was published this spring.
On Feb. 2, 2023, Walker will host a webinar for Founders Network members where she will share her insights from working in corporate risk management.
Here’s a sneak peek at her advice for startup founders as they navigate the security risks that come with launching a business.
Detecting Insider Fraud
You might be surprised to learn how many founders have caught their trusted employees skimming off the top, especially in the early stages of company formation when one person is handling all of the financial processes.
While it’s fairly common, founders aren’t hearing about insider fraud, because there’s an incentive to keep this kind of behavior hidden, particularly from investors.
“There are reasons a founder might not raise the red flag,” says Walker. “They might not want to look back in the eyes of investors and say, ‘We had an employee take cash or equipment.’ That looks really bad to investors.”
Avoiding the “Fraud Tax”
Insider fraud isn’t just embarrassing; it’s expensive. It’s estimated that insider fraud can claim up to 5% of revenue.
“That may not be enough for you to notice, but it’s your money,” says Walker.
Luckily, founders can bake corporate risk management into company culture. That requires establishing processes that promote accountability.
“First and foremost, they have to set up a process that they follow no matter how busy it gets. You have to have a process of checks and balances in place that you stick to … When you’re asking questions on a regular basis about what’s going on, it makes it less likely that someone will do something that they shouldn’t be doing. When you’re not paying attention, that’s when people get comfortable,” Walker says.
In addition to codifying policies and procedures, segregating duties is another corporate risk management strategy. It’s harder to get away with fraud when financial responsibilities fall upon multiple people.
In her work, Walker uses a chart to exemplify how startups of any size can accomplish this.
How to Manage Conflict.. Before it Happens
When Walker launched her first business, she was taking on 100% percent of the financial risk. Her business partner had a full-time job that took precedence. They had a verbal agreement that Walker’s partner would come on full time a year into the venture.
But the partnership went south quickly, in part, because the pair had never codified expectations around the division of labor within the company. But, she didn’t make that mistake again.
“We hadn’t agreed how we would handle conflict,” Walker says. “At the end of the day, it would have been easier if we had documented what we were saying in the beginning. I clawed back a big chunk of equity. It was very contentious.”
That’s why she stresses the importance of putting things into writing.
As one of Walker’s mentors said: “Contracts are for the times when we don’t like each other.”
Contracts provide answers to questions like: how will we handle a dispute? What is the cool-down process?
With her current startup, which is pre-revenue, Walker has three people working with her. They started the venture with established expectations for what happens when those people come over full time.
Walker’s webinar will also cover how to manage key risks including:
- Fraud-proofing your business
- Protecting against cyberattacks
- Preparing for conflict between founders
Founded in 2011, Founders Network offers lifelong peer mentorship to over 600 tech startup founders globally. Our platform, programs and high-touch service facilitate authentic experience sharing, warm introductions and long-term professional relationships. Additional benefits include over $1M in startup discounts and mentorship from 50+ Institutional Investors. Members are located in San Francisco, New York City, Los Angeles, Vancouver, Toronto, London and other tech hubs. Each month our Membership Committee admits a new cohort of full-time tech founders who are nominated by an existing member.