CMA Final · Entrepreneurship and Startup · Risk Management Strategies
A Pune-based agritech startup sells soil-sensor kits to farmers. Its founder discovers that 70% of revenue comes from a single distributor, Kisan Mitra Traders. The founder decides to onboard five new regional distributors and a direct online channel over the next year. Which risk management strategy is the startup mainly applying?
The startup is applying risk diversification. Its problem is concentration, with 70% of revenue from one distributor, and adding several distributors plus a direct online channel spreads that dependence across multiple sources. It is not transferring risk to an insurer, avoiding the market, or simply retaining the risk.
- ARisk transfer through insurance
- BRisk avoidance by exiting the market
- CRisk diversification to reduce concentrationCorrect
- DRisk retention through self-funding reserves
Explanation
The exposure arises from dependence on one customer or channel. Adding several distributors and an online channel spreads revenue across sources, which is diversification. Insurance would be transfer, and exiting the market would be avoidance, neither of which is being done here.
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