Top 10 tech company risks (and how to mitigate them)

Businesses of all types face a growing list of risks, and technology companies are no exception. In fact, tech company risks are often more complex — not to mention rapidly evolving — due to the nature of the industry.

Tech companies are at the forefront of innovation, transforming how we live, work, and connect. But as they continue to push technological boundaries, these companies encounter complex and evolving risks that can jeopardize their operations, reputation, and bottom lines.

From cybersecurity incidents and regulatory compliance to fraud and workplace safety, there are plenty of challenges for tech companies to juggle. And those risks can’t just be ignored in hopes that they’ll disappear (they won’t).

While some risk-taking is good for business and can help identify new opportunities, other challenges could wreak serious and costly havoc or even see a business close up for good without proactive protections. For tech companies to thrive in today’s rapidly-changing business landscape, monitoring existing risks and staying on top of emerging threats is a vital and ongoing effort. Because you can’t plan for what you don’t know.

In this article, we’ll look at top tech company risks and how business owners can adopt strategies to mitigate these challenges.

1. Cybersecurity

This one should be obvious for any tech business owner. While some may think that cyber incidents only affect large corporations, small tech companies and startups are prime targets for cybercriminals because of the notion that smaller businesses have less sophisticated cybersecurity measures. In fact, 43% of cyberattacks affect small businesses, but only 14% are adequately prepared to defend themselves. 

Prioritizing data privacy and cybersecurity not only helps safeguard sensitive information but can also go a long way in securing client or consumer trust and enhancing your company’s reputation.

Tips to address cybersecurity risks:

• Create a culture of cybersecurity awareness and train your employees on best practices.
• Hire cybersecurity experts to review your systems for potential issues you may have missed.
• Regularly test systems and products for vulnerabilities and security gaps.
• Transfer the financial fallout of a cyberattack to your insurance provider with cyber liability insurance.

2. Product liability

For tech companies, a seemingly minor product issue can cause a cascade of problems. Insufficient testing before a product is launched or delivered to a client can lead to steep financial consequences and harm your company’s hard-earned reputation. 

Tips to address product liability risks:

• Never skip testing. Even if deadlines are looming, ensure testing is thorough.
• Consider using a product lifecycle management (PLM) system, which helps track a product’s development.
• Have established procedures and milestones for product testing.
• Keep detailed documentation of testing results at every interval.

3. Professional liability

Wouldn’t it be nice if mistakes never happened? Of course, the reality is that mistakes happen all the time. Claims of product mistakes, negligence, misrepresentation, and unmet contractual obligations can be costly for tech companies — even if the claim is unfounded. That’s why taking steps to ensure an unintentional error won’t derail your tech company is crucial.

Tips to address professional liability risks:

• Always use contracts and service agreements with clients, customers, and partners.
• Ensure communication is transparent and clear, and relay any project challenges as soon as they are identified.
• Have the right insurance coverage to protect your tech business from claims alleging errors and omissions.

4. Artificial intelligence

There’s a lot of excitement about what AI offers businesses, including new tech opportunities, increased efficiencies, and improved productivity, to name a few. AI offers plenty of benefits when implemented properly. Though there is a lot for businesses (especially tech companies) to gain from the massive rise of AI, there is also a lot of risk. 

Tips to address AI risks:

• Testing and more testing — don’t rush the implementation of new tools without adequate testing and review.
• Create policies for onboarding new tech tools.
• Train employees on how to use AI tools.
• AI is not perfect, so be aware of potential downfalls, such as biased results from AI tools, that could impact your business by implementing oversight procedures.

5. Regulatory compliance

Navigating regulations for tech companies can be complex, with different requirements in different jurisdictions. With an increasing number of domestic and international regulations, ensuring compliance is a constant process that requires vigilance. Noncompliance with regulations could result in fines, legal action, and reputational damage.

Tips to address regulatory risk:

• Do your homework to know the regulations where you operate.
• Use a compliance management system to organize and keep tabs on regulatory requirements.
• Appoint a compliance officer.
• Consult with regulatory experts when preparing to do business in a new region.

6. Intellectual property theft

Intellectual property (IP) theft refers to the unauthorized use or outright theft of your company’s patents, copyrights, trade secrets, and other proprietary information. 

According to Cybersecurity Magazine, recent years have seen “a notable shift towards digital channels for IP theft, leveraging cyber espionage, phishing attacks, and insider threats.” What’s more, IP theft is on the rise; in 2023, the enforcement of IP theft in the U.S. was up 21%, and the total cost reached $1.1 billion.

Tips to address IP theft risks:

• Use nondisclosure agreements (NDAs) with all employees and partners.
• File patents ASAP.
• Use IP infringement monitoring tools that will alert you of potential issues.

7. Employee theft or fraud

While no business owner wants to think that their employees will steal from them, unfortunately, employee theft is a reality that businesses need to be conscious of. It’s also more common ]than you may think. In fact, 75% of employees admit to stealing at least once from their employer, and 95% of businesses are affected by employee theft. 

Tips to address employee theft or fraud:

• Foster a positive work environment so employees feel respected and valued.
• Routinely audit who has access to what at your company. 
• Create a fraud prevention plan for your business.
• Conduct background checks on new employees.
• Create policies for how to handle employee theft, including disciplinary action and dismissal. Make sure to share the policies with your team.
• Consider purchasing insurance to protect your business from losses caused by employee theft or fraud.

8. Vendors and supply chain management

Vendors and suppliers are integral to the operations of many tech companies. However, security issues with vendors or supply chain shortages can be problematic without advanced planning in place.

Tips to address vendor and supply chain risks:

• Thoroughly vet all vendors and suppliers.
• Be aware of your vendors’ risk management procedures and practices for mitigating cyberattacks that could affect your business.
• Work with multiple suppliers instead of being reliant on only one.
• Have a backup plan ready for sourcing materials.

9. Workplace safety

The risk for occupational injuries might be lower in the tech sector compared to many other industries, but that doesn’t make them immune to workplace safety concerns. Protecting your strongest asset (aka, your employees) is a legal requirement, but a safe workplace also offers many advantages, including increased productivity and better talent retention and attraction.

Tips to address workplace safety risks:

• Create workplace safety guidelines and encourage employees to report safety concerns.
• Conduct routine employee safety training.  
• Stress and fatigue can lead to accidents, so promote a healthy work-life balance.
• Consider conducting an ergonomics assessment to identify areas for improvement.
• Have adequate insurance to protect your business from workplace injury claims.

10. Business interruption 

An unexpected event that’s out of your control can severely hinder business operations. Just look at the recent devastating Los Angeles wildfires. Being prepared for unforeseen business interruptions is crucial for weathering any storm, particularly with the increased frequency and intensity of extreme weather events. Without proper planning for unforeseen business closures, organizations face a high risk of permanently closing in the event of fires, floods, and other unexpected events.

Tips to address business interruption risks:

• Have an emergency preparedness plan in place.
• Develop a business continuity plan. Make sure to test the plan and adjust as needed.
• Purchase business interruption insurance to cover lost income if your company has to close temporarily.
• Store essential data in secure locations and create backups.
• Use the Red Cross Ready Rating Program to assess your organization’s emergency preparedness.

Risk management for tech companies

Developing an effective risk management plan for your company will help you prepare for any unexpected twists and turns that are thrown your way. Think of a business risk management plan as the glue that keeps things together.

One of the most effective ways for tech companies to manage the financial implications of potential risks is by transferring it to an insurance provider. When you sign a contract with an insurer, the premiums you pay for tech insurance transfer certain risks from yourself to the insurance provider. 

Keep in mind that risk management is an ongoing process — because as your company grows and changes, so too will the potential risks. And being proactive with addressing risks means you can continue to push the innovation envelope.

To learn more about protecting your tech company from risks, check out our blog that outlines how to create an effective risk management strategy.