The Start-Up CEO's Guide to Proportionate Risk Governance - Insurance Risk Strategy - Day One to Day 365

From the Chair - Encina Consulting

Every founder CEO needs to know that there is a version of Risk Governance that kills start-ups slowly. Not through bad luck or market timing, but through the well-intentioned application of the wrong framework at the wrong moment.

I've seen it more than once. A founder hires a Chief Risk Officer - often because the regulator expects one, sometimes because an investor insists. The CRO arrives with five days a week to fill, ambitions high, and a career's worth of frameworks to deploy. Within three months, the business is drowning in policies no one reads, board papers no one understands, and risk processes that would be proportionate for a business ten times the size.

The CRO is busy. The CEO is frustrated. The board is overwhelmed.

And the actual risks - the ones that could genuinely sink the business - are buried somewhere in a 40-page risk register that nobody has time to interrogate.

This is not a hypothetical scenario; it's the default outcome that I've seen time and time again when Risk Governance is implemented without commercial judgment.

The three mistakes that kill early-stage Risk Governance

The first is volume. A full-time CRO in a start-up will produce full-time CRO output, because that's what they know how to do and how they justify their existence. The result is a Risk Governance infrastructure designed for a mature business, imposed on one that is still figuring out its operating model. Policies arrive before processes exist. Frameworks are built before there is anything to frame. The business slows down under the weight of it.

The answer is ruthless proportionality. In year one, you need the five or six Risk Governance artifacts that genuinely matter. And you need a focus on the risks that could actually end the business or trigger regulatory action, identified clearly, owned explicitly, and reviewed regularly. That's it. Everything else can wait.

The second mistake is maximalist language. The CRO who describes every emerging issue as a "massive risk" or a "stack of cards about to collapse at any moment" is not being rigorous - they are being unhelpful. Yes, systems, processes and controls are not in place yet. This is normal. The skilled CRO will know which small number of key controls are essential and will help put them into place, right-sized for what is needed.

Generic risk-calling without commercial specificity is noise. The CEO has enough to deal with already, without noise.

What could actually go wrong, specifically?

What would it cost?

Is that acceptable given where the business is right now?

For most start-ups in their first year, the honest answer to that last question is often yes, and a good CRO should know this.

A risk event in a start-up is not automatically a catastrophe. The CRO who treats it as one, escalating immediately, convening emergency meetings, triggering board notifications, is spending political capital and leadership bandwidth, and is burning executive time that the business cannot afford to lose. Proportionate response requires proportionate judgment. That judgment comes from commercial experience, not framework literacy.

The third mistake is timing. The board of a start-up does not need to approve 100 pages of risk artifacts in its first six months. It does not need to spend time on a 10-page risk appetite statement and associated risk tolerance framework with detailed KRIs before it has written its first policy. The sequencing of what goes to the board, when, and in what form, is itself a governance skill and one that is frequently underestimated. Arrive too early with too much, and the board becomes desensitised, approving documents they don't understand because they feel they have no choice. Arrive too late and there are genuine gaps. The art is knowing the difference.

What good looks like in year one

Month one: Make sure your CRO has time to understand the business model intimately before they have opinions. How does this business actually make and lose money? What are the two or three things that could genuinely threaten it in the next twelve months? Have them start there and only there. If necessary, have them start with anything pressing or urgent, but if the CRO can wait, then encourage them to have the maturity to wait.

Month three: This is the time to review the CRO's proposed risk management framework and Implementation plan - one that is genuinely fit for purpose and is timed over the first two years in a pragmatic way, aligned to business growth. If its not needed now, don't build it now. This framework should not be borrowed from their previous employer, not copied from a template. Instead, it should be bespoke for this business at its particular growth stage. It should fit on two pages. It should be something the CEO can explain to the board in five minutes.

Month six: Begin to think about your regulatory strategy - the one which will create a regulatory relationship that is proactive, not reactive. The regulator should know who you are, what you're building, and why they should trust you. This is built through early, voluntary, honest engagement, not through waiting to be asked.

Month twelve: review everything. What worked? What was unnecessary? What gaps emerged that weren't anticipated? Where is the CRO's approach to Risk Governance working well and where not. Too light. Too Heavy? Overly detailed? Abstract? The first year is a prototype. The Risk Governance built in year two should be informed by what you learned in year one, not a scaled-up version of what you imported on day one.

Proportionate is a key word. It doesn't mean minimal. It means right-sized, commercially grounded, and genuinely useful. That is a harder thing to build than a comprehensive framework. But it is the only thing that actually works.

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Jon Macdonald | Risk Governance Advisor & CEO Coach | Founder, Encina Consulting

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