Entrepreneurship generally entails a certain degree of risk-taking. As such, entrepreneurs understand that they must be willing to take a risk in pursuit of potential profits.
They realize that in order to achieve their strategic plan, some degree of risk-taking is necessary.
The problem with this narrative is that I don’t believe it is true. In my experience, one of the things that makes for a good entrepreneur is the ability to accurately understand and manage risk.
Most people do a really poor job of estimating risk in business. They often don’t consider the opportunity cost of staying put and not trying out new endeavors.
Risk management is often thought of as the mitigation of uncertainty in the market, including aspects such as consumer behavior and the response of competitors.
While entrepreneurs should clearly strive to prevent or avoid certain risks, they should also remember that some risk is inevitable, necessary, and — when well-managed — beneficial in the long run.
- Understand that risk is opportunity
From the earliest stages of a new business idea, risk and opportunity are inseparably linked. Entrepreneurs can make this connection when comparing their personal goals with possible entry points into the market. Preliminary research will almost always yield insight on both sides, which is why startup leaders need to have an understanding of their industry.
Along with identifying opportunities, doing your research can ultimately help to mitigate and manage risk. The entrepreneur who closely observes consumer sentiment, for example, will have a better idea of how to steer clear of costly missteps. The same individual will also have a better frame of reference for what risks come with the territory.
Recognizing the many benefits that come from developing an understanding of the demands of the market can make a notable difference for new business owners. On the opposite end of the spectrum, trying to identify opportunities without risk can lead to less-than-desirable results.
- Weighing the chances properly.
Successful entrepreneurs stick to the basic principles of risk management: They look for opportunities where if they fall short they lose only a certain value, but if they win they could stand to gain 10 times as much.
And the best entrepreneurs never bet more than they can afford to lose. They always consider Plan B (as well as Plan C, D and E) in case the current program doesn’t work out as expected.
Having these parameters enables them to build viable businesses.
- Seeing and pursuing opportunities where others don’t.
While savvy entrepreneurs understand their limits, they don’t allow a lack of resources to limit their vision.
Howard Stevenson, a longtime professor at Harvard Business School, wrote that entrepreneurship is “the pursuit of opportunity beyond resources controlled.”
Entrepreneurs see a need in the market and do everything they can to make a business option come about even if they don’t have the resources on hand at that moment. To them, not pursuing a new opportunity is the risk.
- Avoid complacency
Just as one should generally avoid business opportunities that present themselves as risk-free, so too should one continue finding ways to stretch in a company even after achieving success. While this doesn’t mean taking on risk for the sake of it, it does mean finding a balance between organic growth and reckless expansion. The organic model may never propel a business forward, while the latter may mean that it does not survive at all.
Complacency can also come in the form of optimism. In other words, entrepreneurs often tend to have a positive outlook on their life and their business ventures in particular. Yet, one’s hope that a company is on its way toward sustainable growth and success will only move it so far. Once again, staying informed and conducting market research are crucial to managing and mitigating risk.
In the end, startup leaders must strive to achieve their objectives in the face of uncertainty.
- Insurance is the key
Transfer your risks to insurance companies by protecting them against damaged liabilities,
injuries and incapacities. By insuring all kinds of raw materials and proceedings, you stand a chance to lose very less in case of a business or a plan failure.
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