Developing Business Ideas and Models: Risk Assessment, Legal Analysis and Estimating Sustainability over Medium to Long Term

 09 June 2020   |    Sunayana Basu Mallik

The usual strategy to identifying law from a validation or facilitation point of view may have to transform to evaluating risk exposure and comprehending the precise legal landscape impacting the services, sectors and products from a ‘resource point of view’.

As human capital investment is considered integral to developing a product or service platform, there is a growing awareness to redesign notions and strategies to evaluate legal terrain and limitations, and this new strategy is an indispensable ‘resource’ to launching a product or service by an individual or organization.

As a lawyer  to a corporate entity or an organization, we lawyer transition to the role of analysts as we continuously ask questions to the founders or promoters on their business ideas and models. Such analysis is often intense and vigorous for business ideas relating to non-conventional, highly innovative sectors, absolutely new or within emerging sectors and technologies. The data and business insights given by founders and promoters when they arrive at their lawyer’s office, mostly orally and also in writing, is systematically collected. Thereafter, we need to first process the same in real outcomes and deliverables to its market. We need to critically evaluate the information, observation and background experience of these organizational leaders and compare it to the real needs and requirements of the organization.

One conventional aspect is to facilitate the entire process of commencement of business (identify the legal structure to incorporate the entity, carry out preliminary documentation, etc.).  However, more integral than that is conditioning one’s mind to challenge the ‘status quo’. Organizational leaders come to meet their lawyers in a state of innovative euphoria and optimism but evaluating the below mentioned aspects can translate such innovative ideas in to risk-resistant, stable models to launch and grow their business. Such models then assume some stability to collaborate with other business partners.


1.Entrepreneurs, founders or promoters of companies have a deep understanding about their products/platform and are dexterous about the machinery or technology behind it. Most of them would have invested more than 30% of the annual expenditure on the product/platform before they consult lawyers or legal analysts. The question is after investing capital and resources of considerable value ‘Is your business idea/model implementable seamlessly without any governmental and legal restrictions, surveillance and  audit for  the next 2-3 years?’  

There is a stream of state and central laws and sector-specific guidelines which gathers into a discreet undercurrent which is not apparently visible when one is in the ideation or pre-launch phase of business (services/products).

Case Illustration “A”:

A founder/promoter wants to enter the online gaming business which involves money contributions from users. The structure of the business and architecture of the product is very important. There is a fine line between a game of skill and wagering. It needs extensive comparison on the legal stance taken by central and state governments and courts on various aspects and a practical assessment of the changing concept of morality and public policy.

Expending efforts to develop a business format and technological or product platform, hedging risk exposures and developing it within the permissible matrix of law is core to sustainability and growth of the platform.

Case Illustration “B”

A Founder/Promoter wants to create a ‘Peer to Peer’ (P2P) lending platform. The concept of traditional money lending is in place for the last 500 years. There are significant categories of people who still practice lending money without obtaining appropriate licenses.  The P2P concept is emerging and innovative technologies have been deployed to channelize excess cash into useful interest rates.

However, it requires extensive scrutiny of the plethora of laws and how they impact the business. The laws governing this area also impact instances of default and recovery of outstanding payments. There may be specific licenses being issued by the Reserve Bank of India, but it dominates and only covers Non Banking Financial Companies. There are many companies doing this business who don’t fit into the definition net set out by government regulators.

2.  A business path/platform running into such grey areas does not blacklist them, nor does it consider them as road blockers. 

But it must account for the enhanced cost of representation before courts, the government and institutions, and obtain clarity on the guidelines and subsequent diligence cost, which may exceed the cost of initial infrastructure and resource building cost. It must also account for intangible cost of uncertainty that may impact its business valuation and market perception.


Reduced speed of Funding Business/Start up post Covid 19

After the outbreak of the coronavirus pandemic, there is a natural brake on the overall idea of scalability generally achieved by raising angel or Series A funding. The unforeseen risk exposure and the cost involved in battling them without any funding may lead to the eventual decline of business, impacting business sustainability. Start ups and emerging businesses may not have large funds and the guidance of strategic advisors and board of institutional funding bodies to handle such uncertainty. Thus, the cost and resource allocation to obtain an exhaustive macro legal perspective (precisely summarizing the principles laid down by courts and the government) on the same business vertical or the closest aligning business vertical is the substratum for business sustenance and growth

3) To illustrate, an enterpreuner/promoter may spend more than 1 crore INR or 1.5 million USD over a period of 18 months in product development, marketing and business development activities, consequently acquiring substantial market visibility and many loyal customers/followers. After this time, if the same business/product or service platform receives a show cause notice from the government/court including a direction to suspend business till answers are furnished to such notice, the overall business will slow down and suffer from considerable perceptional loss.

The ideal scenario is to minimize the losses resulting from this situation. The optimal situation is if founders/promoters will not feel baffled or panic-stricken after receiving a show cause notice, which can happen if they are aware of the risk exposure and anticipate such action. There would be a ‘Plan B’ and strategies around the same already brainstormed and documented by the management team.

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Understanding the canvas of laws, policies and regulation while doing business ideation and launching product/service platforms.

The business ideas and models of founders may be ‘viable and commercially sustainable’ but it is prudent to understand whether the business vertical (product/service or a hybrid model) will have an impact.


The business vertical may have

  1. vague regulations governing the segment because of conflict of principles taken by different government departments and ministerial guidelines.
  2. no express regulation but a broad policy set out by the government governing the overall sector to which the vertical belongs.
  3. no regulation of guidelines set out by the government but the courts/tribunals may have peripherally covered some issue of the vertical including referring to it while interpreting fiscal and tax laws.
  4. no regulations and guidelines from the government or no decision of the court directly or remotely impacting the vertical, however there may be international conventions/guidelines/white papers prepared by regional bodies or created by treaties like OECD.
  5. no regulations or guidelines from the government, no decision of the court, no international conventions, etc. Then, one can possibly look at laws in countries from which the country has significantly borrowed its legislation. India and several commonwealth countries have referred to legislations and policies enacted in the United Kingdom and sometimes the United States of America to draft its own domestic legislation.
  6. If none of the above is available, there is a need to understand the business model rather than the business idea and comprehend the legal relations created within the technical features, interface and embedded technologies including Artificial Intelligence enablers. The identification of the legal principles within which the business model operates will at least provide the business model operational strength to sustain and grow.


Refer to reverse pyramid below (Figure 1.1)




The organization’s lack of awareness of the legal landscape prior to launching its product/services may lead to unwarranted performance failures with other business partners and give rise to an enquiry or scrutiny.

To illustrate, assume a robust business model is planning its  supply chain. It engages suppliers and distributors to take such products/services to both the domestic and global markets. Due to contracts/agreements, such organizations obtain deposits and performance guarantees and assures business revenue and commission for the next 12 to 24 months. If, within 12 months of operation of the business, there are foundational questions asked by government authorities or courts intervening through PILs or Suo Motu powers, such organizations may default on other business to business (B2B) obligations (contractual obligations and best industry practices or standard industry practices).



Founders/promoters find it burdensome and cumbersome to tag lawyers in launching their business innovations but post brainstorming the Matrix and plugging gaps, the business model - product/service platform may need feature redesigning and revisiting the product architecture as it would essentially impact the manner in which the entity renders its product/service.



The usual strategy is to think about law from a validation or facilitation point of view, largely as an external service provider. But this may have to transform to integrate such legal assessment within business analysis. A coherent integration within the system, to evaluate risk exposure and comprehend the precise legal landscape impacting the territorial (sectors/service/product/technology) limits of an organization, is worth considering. As human capital investment is considered integral in developing and launching a product or service platform, redesigned notions and strategies that take the legal landscape into account must be considered an indispensable ‘resource’ to launch a product or service by an organization that will generate seamless long-term benefits.


Ms. Sunayana Basu Mallik has worked with start-ups and mid-size companies in launching their products in India. She has worked with entities in the IT and ITES segments. She has worked for companies with extremely innovative business models quite unimaginable during 2011-2013. She has advised conventional product companies including within the luxury textile segment, hospitality and quick service restaurant segment.


 All copyright on the contents of this article is owned by Ms.Sunayana Basu Mallik and is a part of a larger book she has written.

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