Strategic vs. Avoidable Failure
“Companies should fail for the right reasons.” This phrase, drawn from the analysis of Silicon Valley Bank, highlights a core principle for every entrepreneur: if a startup does not succeed, it should be because its product failed to find a market or its business model proved unviable — not because a poorly managed risk brought it down when it could have been avoided.
The reality we observe in the entrepreneurial ecosystem, especially among first-time founders, is that risks are rarely anticipated from the start or addressed through mitigation strategies until it’s too late. This lack of foresight can become the ultimate barrier for projects that would otherwise have strong potential to thrive.
Risk management is not an unnecessary expense — it is a strategic investment to ensure avoidable problems don’t become insurmountable obstacles.
In an environment where every decision can determine a project’s survival, founders must understand that proactive risk management is a foundational pillar for building strong and resilient companies.
Essential Coverage for Every Stage of Growth
A startup’s protection must evolve alongside its growth. There are specific types of coverage that become critical at different stages of development, and every founder should take them into account:
Founders’ Agreements: The First Line of Defense
The starting point for effective risk management begins with a clear agreement among founders. This document should outline expectations, responsibilities, and conflict resolution procedures, establishing a solid foundation for a professional relationship.
Within this framework, it’s also advisable to consider cross-purchase life insurance — even if initially modest — as protection against eventualities that could threaten the continuity of the project.
Critical Coverage for Scaling Startups
D&O (Directors and Officers) insurance becomes particularly relevant when trying to attract high-quality investors. These investors often require this type of protection as a condition for participation, especially if they are considering joining the board of directors. Specialized studies confirm that D&O insurance has become a key differentiator for startups seeking substantial funding.
On the other hand, E&O (Errors and Omissions) coverage becomes crucial when the startup begins expanding internationally. A contract with a client in the U.S., for example, will often require this type of protection as a non-negotiable condition.
The Cost of Improvisation
What we frequently see in the startup ecosystem is a delayed response: when faced with an urgent external requirement (such as a demand from a potential investor or client), founders scramble to find a solution. This improvisation — driven by lack of time and expertise — can lead to:
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Loss of strategic business opportunities
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Unfavorable policy terms
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Inadequate coverage for the startup’s specific risks
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Significantly higher costs than planned procurement
Anticipating risks not only protects the startup but also conveys professionalism and strength to potential investors and clients. A seasoned investor can quickly assess a founding team’s maturity by observing how much attention they give to preventive risk management.
In an ecosystem where statistics show that around 90% of startups don’t survive their early years, it is essential to distinguish between inevitable failures (part of the innovation process) and those that could have been avoided with proper risk management.
I invite you to reflect on the specific risks that could compromise your startup’s growth and to consider what preventive actions you could take today. The difference between success and failure often doesn’t lie in the quality of the idea — but in the ability to protect it while its potential is being realized.
