John Wall: I know it’s not a lot of fun, but insurance is part of business that you have to stay on top of and understand how it works and empowers your whole business cycle. Every entrepreneur, as they’re starting out, usually wants nothing to do with insurance. You know, maybe you’re not even paying yourself and you’re living on rice and beans trying to survive. The last thing you want to do is start paying a lot of money for insurance. But depending on the product you have, you don’t want to get into a situation where something goes horribly wrong and you end up getting sued. You don’t want to lose your house. Even though you may not have a ton of cash to buy all kinds of insurance policies, you at least need to protect yourself. The important thing is to start early with this: have an insurance advisor of some sort in your network that you can talk to, because they can identify the risks for you. There’s a whole field called Risk Management that the entire purpose is to make sure that you don’t have some kind of disaster, or minimize the odds of having a disaster.
John Wall: The second thing is that even though you can avoid it forever, sooner or later, you’re going to start selling to large enough organizations that they’ll have a procurement department. They’ll have people who are in charge of purchasing, and those people always will require you to have insurance. They don’t want to be buying a product and then have something go wrong and not have some kind of financial safety net there for them. One trick with this, with startups and smarter orgs that I’ve seen and has worked really well, is the first time you get prospects saying you need insurance, you’re going to have some friction and some problems. You may have to talk a CEO into it, or a founder into it. The key is, insurance, really, relatively, is not that expensive. The first time you get a large enterprise deal, you can just bake the insurance premiums into that first deal. There’s usually enough money there that you can just pay with the insurance. You’re basically having the client pay for the insurance. So you can say, “Yes, we have it, but it’s covered in that first deal.” So keep that in mind.
John Wall: Then the third and most important thing is that once you get to a point where there’s enough insurance that you’ve got things like workers compensation to protect your employees, you’ve got a bunch of liability protections so if there’s an accident or travel problems or something goes wrong with the product, you’re covered. Ultimately, everything that you do for insurance and risk management at this point will fold right into the due diligence for acquisition. If you are fortunate enough to get to a point where someone wants to purchase your company, they’re going to demand a bunch of paperwork about “If we pay you and you go away, how does the business run? How is this going to work?”
John Wall: The Mass Founders Network has an entire resource guide on insurance for startups. Go ahead and check that out over on the MFN site, it covers all the major categories of insurance and types of insurance, so you can understand what they’re for and what they do and how they protect you.
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