Kaplan University MBA603: Risks and Ethical Issues Report

This report, prepared for the MBA603 course, comprehensively analyzes the risks and ethical considerations involved in launching and investing in startup businesses. It begins by identifying and assessing various risks, including product, financial, and technological risks, from both the entrepreneur's and the investor's perspectives. The report uses case studies of companies like Faction Collective, Pistol Lake, and Lumens Light to illustrate these risks. It then delves into ethical issues such as integrity, compliance and governance, and diversity, examining their impact on both entrepreneurs and investors. The core of the report identifies the top three critical issues – product risk, financial risk, and compliance and governance – and proposes mitigation strategies for each, providing practical guidance for startups and investors. The report concludes by emphasizing the importance of addressing these risks and ethical considerations for the long-term success of new ventures. The report follows Harvard referencing guidelines.

RUNNING HEAD: RISKS AND ETHICAL ISSUES
RISK AND ETHICAL ISSUES
Name of the Student:
Name of the University:
Author’s Note:

1RISK AND ETHICAL ISSUES
Table of Contents
Introduction:....................................................................................................................................2
Risk assessment:..............................................................................................................................2
Ethical issues analysis:....................................................................................................................5
Top three issues:..............................................................................................................................9
Product risk:.................................................................................................................................9
Compliance and governance issue:..............................................................................................9
Financial risk:............................................................................................................................10
Conclusion:....................................................................................................................................10
References:....................................................................................................................................11

2RISK AND ETHICAL ISSUES
Introduction:
While investing in a business organisation or creating a start-up business organisation,
the investors and owners have to face certain risks and ethical issues. These risk drivers must be
prioritised by the entrepreneur of a start-up company and every investor to mitigate the risks.
This report aims to identify risks and ethical issues and analyse them from the start-up business
organisation and investors perspective. Among these identified risks and issues the top three will
be chosen. To mitigate the issues what should be done will be analysed in this report.
For the risk assessment, ‘Faction Collective’, as a start-up company, will be analysed.
This Switzerland based Start-up Company, formed in 2006, is the manufacturer of poles, freeride
skis and skiing related product. Co-founder of this organisation re Tony McWilliam and Alex
Hoye (Faction Skis, 2020). The ski equipment products produced by this company are delivered
in Switzerland and the global market. For the part of the ethical issues, the chosen company is
‘Pistol Lake’. In 2012, this company was established to produce organic cotton (Pistol Lake,
2020). By recycling used water bottles and eucalyptus, this company produces organic cotton for
men, which is perfect performance fabric. Founders of this company were Will Sulinski, James
Sulinski and Andrew Kneisley (Pistol Lake, 2020). Lumens Light was established in 2006. This
company aims to offer modular LED lighting for high bay commercial and industrial building,
which can save at least 50% energy and reduce cost (Lumens.com, 2020).
Risk assessment:
In this part, three risks for the ‘Factory Collective’ will be highlighted, which can affect
investors of Start-up Company or owner, who has developed a start-up company. The

3RISK AND ETHICAL ISSUES
entrepreneur or the investor of this company can be affected by three key risks which are
product risk, financial risk and technological risk.
Entrepreneur perspective
Product risk An entrepreneur can face difficulties in transforming an idea into a market-
ready product. An entrepreneur utilises his idea and transforms it into a
product. This procedure is time-consuming and difficult too (Teberga Pedro
& Oliva 2018, p. 1363-1381). The Factory Collection, as a start-up company,
produces equipment for ski. In this scenario, the entrepreneur of this
company has faced problem to develop an environment-friendly and light-
weight product for all-mountain skiing.
 Flaws in the product can affect the entrepreneur. The defect in the
product design, inability to support growth, the decreasing demand
for the product can affect the business of the Faction Collection.
 Lastly, the initiative of the Faction Collection can be affected by laws
and restriction.
Financial risk  The business of the Faction Collection can be disrupted by several
financial factors which are loss of capital, uncertain income, inflation,
economic recession, higher costs, bankruptcy and changes of interest
rates (Berkhout, Hartog & Praag 2016, p.249-268).
 To develop a new product, collecting the amount of money can be
difficult for an entrepreneur.
Legal risk  Contract risk, human resource risk, regulatory risk and environmental
risk as a part of legal risk may affect the start-up company (ROZEK

4RISK AND ETHICAL ISSUES
2019, p.571-586). The business of the Faction Collection can be
disrupted by the legal risk. This company does not face any problem
due to copyright infringement.
Investor perspective
Product risk  Investors are interested to get the maximum return of investment.
Investing in a start-up company can be risky for investors. Investing
for the product of a start-up company can be risky the product is
failed to attract the targeted market (Koh et al., 2015 p.10-28). As the
Faction Collection is successful to create its brand reputation in
Switzerland and the global market, the investors of the Faction
Collection Company are now comfortable to invest in this company.
Financial risk  If the product of the Faction Collection is failed to attract the targeted
market segment, then the invested money of the investor may deliver
the lowest return of the money (Rengifo & Trifan 2010, p.41-59).
Legal risk  Whether legal money is invested by the investor or not can be
examined by the government. This scenario can create difficulty for
the investor (Sundarasen, Goel & Zulaini 2017, p.738-760).

5RISK AND ETHICAL ISSUES
Ethical issues analysis:
In this part, three ethical issues will be identified which can disrupt the smooth business
of a start-up company and investors. In this part, two organisation will be used which are Pistol
Lake and Lumen.
Entrepreneur perspective
Integrity  As the owner of a start-up company the integrity of
the owner reflects on the business. By following
moral code strictly a business organisation can
generate its brand reputation (Sousa et al., 2012 p.59-
68). To ensure the success of the new product in the
market, if the owner of Pistol Lake and Lumen
Company follow unethical business practice then, the
brand reputation of this company will be hampered.
The brand reputation and long-tern benefits rely on
ethical business practices.
Compliance and governance  Start-up companies like Lumen and Pistol Lake have
to emphasise on compliance and governance issues.
Owners of these two start-up companies encourage
their employees to follow on ethical business
practice, breaking the company laws and values to
achieve short-time benefit then the business of these
two organisations may disrupt in future (Fassin &

6RISK AND ETHICAL ISSUES
Drover 2017, p. 649-672).
Diversity issues  By creating a diverse and respectful workplace
Lumen, and Pistol Lake can encourage the
employees to deliver the best performance. It will
help these two organisations to generate trust in the
employee. However, it can be said that instead of
prioritising the diversity issues, the start-up company
emphasise on the success of the product in the
market which can hamper the business of these two
companies (Hernandez-Nicolas, Martín-Ugedo &
Mínguez-Vera 2015, p.93-107).
Investor perspective
Integrity  From the ethical point of view, it can be said that the
investor may be affected by the integrity issue. In the
present competitive landscape, investors are
vulnerable to integrity. Though several start-up
companies enter the market with unsustainable
business models yet investors invest for the start-up
company to maximize the return of investment
(MacGregor & Campbell 2006, p. 59-69). The
business of the start-up company may be disrupted
due to the integrity issue which can affect the

7RISK AND ETHICAL ISSUES
investors. Pistol Lake, and Lumen Company follow
ethical business practice because they are interested
to generate brand revenue.
Compliance and governance  Appropriate corporate governance principles can be
beneficial for Start-up Company to enhance the
valuation of the organisation. Investors invest their
money in a Start-up Company to maximise the return
of investment. Pistol Lake, and Lumen Company
follow appropriate compliance and governance. So it
can be said that it is easy for the investor to invest in
these two companies.
Diversity issues  Investors are not concerned about the diversity issue
of a start-up company. However, it can set a diverse
workforce of a start-up company has the maximum
possibility to become successful. So investing in a
start-up company which prioritise diversity issue will
be beneficial for the investors. Lumen, and Pistol
Lake are two start-up companies. These two
organisations emphasise on diversity because it
generates trust and openness in the employee. So
investing in a Start-up Company, which prioritise
diversity, can be useful for investors.

8RISK AND ETHICAL ISSUES
Top three issues:
In this part, the top three issues will be identified and the way these issues can be
managed it will be discussed. It will be beneficial for the owner of a Start-up Company and
investors to mitigate the risk.
Product risk:
The success of a start-up business organisation may be disrupted by product risk. To
mitigate the product Start-up Company has to follow five steps. The owner has to identify the
greatest risks of the product. Identifying the greatest risks will be beneficial for a start-up
company because it will allow the owner to develop strategic planning to manage the risks.
Secondly frontload testing of the identified risks will be beneficial for the company to mitigate
the risk. The owner has to utilise human-oriented design to overcome the product risk. Bypassing
a Portfolio of product-based start-up business organisation can manage the product risks of
newly launched product. Lastly, the owner has to prioritise learning. These steps will help the
owner to manage the product risk.
Compliance and governance issue:
To mitigate the risk of compliance and governance, the owner of a start-up company has
to understand and emphasis on the interest of stick holder. The owner has to develop its business
objectives which are harmonious with risks and values. While curtailing the risk profile and
ensuring value, the start-up company has to accomplish its objectives. Lastly, e the owner of a
start-up company has to ensure that the business operation follows the ethical, social and legal
regulation.

9RISK AND ETHICAL ISSUES
Financial risk:
To mitigate the financial risk a start-up company has to follow certain steps. Faster has to
develop a solid business plan. Secondly, the conduct of quality control tests is necessary to
reduce financial risk. Maintaining good records and Limited loan can be useful for a start-up
company to manage financial risk. The owner has to track all accounts related to the company.
The start-up company can prepare a risk development plan, which can help the company in a
financially critical situation.
Conclusion:
Thus, this report concludes that the owner of a Start-up business organisation and investor have
to face product risk, financial risk, and legal risk. Three ethical issues such as integrity,
compliance and governance, and diversity issue can disrupt the smooth business operation of a
start-up company. Lastly, the business of a start-up company can be disrupted by the top three
issues which are product risk, financial risk and compliance and governance issue, which must
be mitigated.

10RISK AND ETHICAL ISSUES
References:
Berkhout, P., Hartog, J. & Praag, M. 2016, "Entrepreneurship and Financial Incentives of
Return, Risk, and Skew: ET&P ET&P", Entrepreneurship Theory and Practice, vol. 40, no. 2,
pp. 249-268.
Faction Skis, 2020. Learn More About The Faction Collective. [online] Faction Skis. Available
at: <https://factionskis.com/pages/about-us> [Accessed 20 April 2020].
Fassin, Y. & Drover, W. 2017, "Ethics in Entrepreneurial Finance: Exploring Problems in
Venture Partner Entry and Exit: JBE JBE", Journal of Business Ethics, vol. 140, no. 4, pp. 649-
672.
Hernandez-Nicolas, C., Martín-Ugedo, J.F. & Mínguez-Vera, A. 2015, "THE INFLUENCE OF
GENDER ON FINANCIAL DECISIONS: EVIDENCE FROM SMALL START-UP FIRMS IN
SPAIN", E+M Ekonomie a Management, vol. 18, no. 4, pp. 93-107.
Koh, B.S.K., Koh, F., Chuen, D.L.K., Guan, L.K., Ng, D. & Fai, P.K. 2015, "A Risk- and
Complexity-Rating Framework for Investment Products", Financial Analysts Journal, vol. 71,
no. 6, pp. 10-28.
Lumens.com, 2020. About Us. [online] Lumens.com. Available at:
<https://www.lumens.com/about-us.html> [Accessed 20 April 2020].
MacGregor, J. & Campbell, I. 2006, "What every director should know about investor
relations", International Journal of Disclosure and Governance, vol. 3, no. 1, pp. 59-69.
Pistol Lake, 2020. About Us Header. [online] Pistol Lake. Available at:
<https://www.pistollake.com/pages/about-us-header> [Accessed 20 April 2020].

11RISK AND ETHICAL ISSUES
Rengifo, E.W. & Trifan, E. 2010, "How Investors Face Financial Risk: Loss Aversion and
Wealth Allocation", Journal of Centrum Cathedra, vol. 3, no. 1, pp. 41-59.
ROZEK, R.P. 2019, "Measuring the Returns for the Functions Performed and Risks Borne by a
Start-Up Pharmaceutical Company", European Journal of Risk Regulation : EJRR, vol. 10, no.
3, pp. 571-586.
Sousa, P., Manso, V., Costa, J. & Almeida, F. 2012, "ONTOLOGY FOR ENTREPRENEURS -
RISK ANALYSIS FOR START-UP TECH", Journal of Advanced Research in
Management, vol. 3, no. 1, pp. 59-68.
Sundarasen, S., Goel, S. & Zulaini, F.A. 2017, "Impact of investors' protection, transparency
level and legal origin on initial public offering (IPO) initial returns", Managerial Finance, vol.
43, no. 7, pp. 738-760.
Teberga Pedro, M.F. & Oliva, F. 2018, "Identification, analysis and treatment of risks in the
introduction of new technologies by start-ups", Benchmarking, vol. 25, no. 5, pp. 1363-1381.