Finance 19 October 2018

6 reasons why a joint venture reduces the risks for startups

In a joint venture, you’re running your own business, but the backer is in the background

Starting a business can never happen without some level of risk. The wise entrepreneur will recognise that. The skill is in reducing the risks as far as possible.

And risk rears its head very early in the process of launching a business. It’s there in the primary decision of how to formulate a venture. Think about the three startup options that most people consider first.

Sole trader – when it comes to risk the clue is in the title. Sole – you’re completely alone. Not a great place to be.

A partnership? How do you even choose your partner? Friends, family or business acquaintances are tempting but there’s a lot of evidence to suggest that such relationships are fragile, to say the least.

And then there’s a franchise. That’s where you’ll take all the risk – but you’ll still be working for someone else’s brand and to someone else’s rules.

That’s a bunch of risks before you start. In a joint venture, there are positive advantages that reduce the risks at the outset, and as you grow. Here are six for starters.

  1. Know-how

A joint venture puts you into business with the backing of people who know about starting up businesses. 

  1. Autonomous doesn’t mean alone

In a joint venture, you’re running your own business, but the backer is in the background with all the advice and mentoring you need – when you need it.

  1. Cash flow won’t be a crisis

Cash flow is a massive risk for startups. A good joint venture relationship helps you smooth out the roller coaster ride of outgoings and income.

  1. Getting on with the job

It’s like an invisible risk – the business of “business”. As a new boss of your own business, it’s easy to be pulled into the myriad of administration, taxation and vexation that comes with the territory. And it means you take your eye off the ball.

In a joint venture, you get the back up to free you up to get on with what you do best. Which is growing your business. The risk is removed. 

  1. The facts of life

Not those ones! Consider the other facts of life, like your mortgage, the household bills and your lifestyle. They’re all at risk if you’re in a startup that will take time to make a return. A joint venture can reduce that risk by factoring in your salary from the outset. 

  1. Laws, rules and regulations

It’s doubtful that legislation has ever changed so much and so quickly as it has recently. In every business sector.  And it’s not about to slow down. The risk to a startup of falling foul of legalities is enormous. How do ever find the time to keep up to scratch with it all? In a joint venture, you have the security of having expert guidance from people who will always keep you up to date with your responsibilities.

That’s six areas of risk, all of which can be dramatically reduced by starting up a business as a joint venture. It’s a route taken by entrepreneurs who really want to run their own show, and have the freedom to concentrate on just that.

In my experience, which includes creating some 45 joint venture startups in the recruitment business, the people who succeed are the ones who have focus. You sharpen focus with reduced risk. And the joint venture business model strips away risk like no other.

Paul Mizen is managing director of the Recruit Venture Group

Sign up to our newsletter to get the latest from Business Advice.