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Marketplace Risk Management
Molly St. Louis Avatar

Molly St. Louis

May 7th, 2019

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Marketplaces: Risk Management is Not a Luxury

Imagine for a minute that you came up with a billion-dollar idea for a marketplace platform. Your business model is solid, you have no competitors, and your investors are seeing dollar signs in their eyes. It’s clear that it won’t be long until you and your partner can move out of the co-working space and hire more people, but you’re not quite there yet.

You planned for growth.

Of course, you did your due diligence and secured commercial general liability insurance and it cost you about six-grand. So, you rest assured that when something goes wrong, you’re covered.

But then something does go wrong.

You call your insurance company and they tell you that the incident is not covered. WHAT?! You don’t have the money for this!

So, you fight it.

After days of going up the chain with the insurance company, you get a call from them finally relenting that you are covered, but now that insurance company is not going to renew your policy. You have no other choice than to go to the markets for insurance and because of the value of the claim you just made, your premium has gone from $6,000 to $1 million dollars.

You scramble to find alternatives, but you are dead in the water. Six months later, your startup goes under.

Why Your Marketplace Needs a Risk Program

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This horrifying story is common among marketplaces – and one of the many reasons why The Marketplace Risk Management Conference exists, as founder, Jeremy Gottschalk told us in our recent Platform Players interview.

When Gottschalk began counseling marketplace startups, he started to understand how little founders knew about risk. Many of them saw it as a luxury for large enterprises like Walmart or Amazon, he told us. But the truth is, the lack of a risk management program can cause a startup to shut its doors before it ever gets off the ground.

As the above story illustrates – anything can happen in a marketplace. Scenarios that can’t even be foreseen:

  • A customer’s priceless antique gets broken by a cleaning provider.
  • A sharing economy driver gets into an accident with a passenger in the car.
  • A freelance appointment setter harasses one of the company partners.

The possibilities for getting sued are endless. So, if you are growing a marketplace, you need to weave a risk management program into your business model from the very beginning.

How to Protect Your Marketplace from Day One

Most founders are experts in their individual services – not risk, so it’s no wonder that many of them don’t know where to start. Gottschalk advises that you take these three basic steps:

  1. Get to Know Your Insurance Broker. Make certain your broker is familiar with your business, business model and industry. This ensures you're properly insured and that your insurance actually covers you if/when something goes wrong.
  2. Ensure Your Terms of Use are Enforceable. It's a complete waste of time to have your customers agree to terms of use that are not enforceable, so make sure you consult with an attorney to include all the right provisions.
  3. Familiarize Yourself with the Communications Decency Act Section 230. This federal law has implications across your entire business, including product and technology. Learn how it applies to your specific business and take the necessary precautions.

Resources for Marketplace Risk

Up until recently, marketplaces outside of Silicon Valley didn’t have many resources, but that is no longer the case. The Marketplace Risk Management Conference has an array of learning opportunities for platform leaders, including a Global Summit, Roadshow, and Bootcamp.

You might want to check out a meetup in a city near you, join their social media feed, or jump onto one of their online forums and make a solid commitment to strengthening your risk management program. Your future self will thank you.

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