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CMA Final · Entrepreneurship and Startup · Risk Management Strategies

A SaaS startup in Bengaluru earns 70% of its revenue from one large customer. The founders sign contracts with five mid-sized clients in different industries over the next year to lower dependence on that customer. Which risk management strategy is being applied?

The startup is applying diversification. It reduces concentration risk by spreading revenue across several customers in different industries, so the loss of the one large client would hurt less. It is not hedging with derivatives, avoiding the market, or building a contingency reserve.

  1. ARisk diversification of the customer baseCorrect
  2. BHedging through derivative contracts
  3. CRisk avoidance by exiting the market
  4. DContingency planning through a reserve fund

Explanation

Concentration risk arises when revenue depends on one customer. Adding clients across industries spreads the exposure, which is diversification. No derivative is used, the market is not exited, and no reserve is created, so the other options do not describe the action.

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