What if I were to tell you that you can avoid risks and growth disruptions before even launching your marketplace? Or, that you can save yourself hundreds of thousands, or even millions, of dollars before onboarding your first customer? Well, you can.
At Marketplace Risk, we approach risk management with a layered, top-to-bottom approach. We encourage startup founders to factor risk management into the product, at the outset. The reasoning is simple: by building your product with risk in mind, you are able to build the strongest possible defense against inevitable risks to your platform. If you are successful and scale your product, you will inevitably experience those pesky risks.
So why not prepare for your successful future and consider risk management at the outset?
In this blog, we will outline the four layers of our approach and why each of them plays an important role in the mitigation of risk to your marketplace. Keep in mind, this isn’t intended to be exhaustive, rather, it’s supposed to get you thinking about risk and appreciating the value of risk management.
Executive Responsibilities
Often overlooked, executives are responsible for thinking of risks affecting the company at the highest level, including the corporate entity, its shareholders and directors. While this may seem like a “no brainer” to most, the very act of incorporating risk management at the top potentially shields these stakeholders from unnecessary liability. Practically speaking, executives should be conscious of insurance programs that effectively transfer risks, including Directors & Officers coverage, and make sure that the business is insured for the service actually provided. In other words, you want to be insured for the actual risks attendant to your business.
The best way to do this is to interview your insurance brokers to ensure they understand your business and the risks associated with it. Make sure they understand marketplaces! It also means that you should familiarize yourself with the underwriting process and understand your broker’s submission to the insurance markets. Beyond this, it’s important to observe proper corporate governance as it relates to the board, and ensure that you adhere to the obligations in the financing documents if you’ve got investors. It is also incumbent upon executives to implement standard document requirements, including non-disclosure agreements, independent contractor agreements, employment agreements and employee handbooks and policies.
Business Model & Product Design
By structuring the business model and the design of the product to take advantage of defenses available to marketplaces, you are able to protect the company before any transactions even occur. The two biggest tools in this layer, and the most effective risk management tools, are enforceable customer agreements with the inclusion of key terms, and a product that will avail itself of the Communications Decency Act (CDA) Section 230 defense. When it comes to customer agreements (also commonly referred to as “terms of use” and “terms of service”), you want to ensure that the method of agreement renders the underlying terms enforceable. This means that you will want to make your customers take an affirmative step to agree to the agreement, either by clicking or populating a check box or scrolling through the actual agreement (or a combination of the above). You also want to be sure to include some key terms, including limitations of liability, arbitration requirements, waiver of class actions, severability clauses, among others.
In terms of the CDA Section 230 defense, your marketplace should operate as a passive venue such that the marketplace is not authoring content. In a perfect world, and according to current jurisprudence, that should provide you protection from online and offline behavior of customers. There’s a lot to this, so make sure you consult a lawyer or someone extremely familiar with the CDA. This is something that can easily be integrated and accounted for...and it provides great protection.
Technology Tools & Resources
We are living in the age of technology. The myriad of tools and resources to protect your marketplace and its users are plentiful. Just look at what’s available to identify, predict and prevent nefarious individuals and incidents. From identity products, to screening tools, to fraud prevention strategies, it’s all out there! Beyond that, there is so much data available to combine with any number of tools to really drill down on the bad actors. The question becomes whether you build or you buy.
Depending on resources, technological sophistication and roadmaps, this question can be harder to answer than one would think. Just know that there is a lot that you can do to keep your platform and your users safe...you just need to explore them.
Think through the worst, most offensive ways that your marketplace can be misappropriated and work backwards. Build systems to prevent the worst-of-the-worst, and the rest will be low hanging fruit against which to defend. And when the going gets tough, reach out to us at Marketplace Risk and we’ll point you in the direction of colleagues dealing with the same issues or partners that can help navigate solutions.
Incident Management
It may seem like these steps are time consuming, costly activities. However, it will be a relatively small investment of both time and funds compared to the possible fall-out caused by an avoidable risk. When the inevitable occurs, and it will occur at some point, especially if you hit scale, you need to be prepared.
Customer service is your first line of defense. An empowered, passionate team will be able to diffuse most issues that cross the wires. For those that aren’t successfully dealt with, you need to be prepared. Make sure you have a plan to notify your insurance carrier and an agreement on how to proceed. Have trusted advisors and attorneys available to evaluate the issues and possible claims. Set up a phone tree and crisis management response team to manage any publicity or negative social media fallout. If it comes to litigation, and you’ve prepared yourself as recommended here, you should be in good shape to successfully defend any claims.
The best advice ever given: hope for the best but prepare for the worst. All storms can be weathered.
Check out some of our past webinars for an in depth listen on some of these topics and more https://www.marketplacerisk.com/webinars.
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