Are you truly an entrepreneur if you don’t take risks? My simple answer… “No.” It’s a bold fact — not a theory or opinion. In application, observation and retrospect – I’ve learned that you can’t truly consider yourself to be an entrepreneur if you have not, do not and will not ever take a risk. Every successful and ‘profitable’ entrepreneur will tell you that when they came to a fork in the road, or when it was time to put up or shut up; inevitably they were faced with a tough question, “Can I risk this?”
Sure. Being an entrepreneur is sexy, rewarding, and so on – but it’s also full of inherent risks. When you launch a startup you put everything on the line; your financial well-being, career opportunities, family relationships and emotional health. Even the most successful entrepreneurs have issues with risk at varying degrees.
“Since risk is a non-negotiable when it comes to entrepreneurship, ultimately your goal is to decipher your baseline — the level of risk that you are comfortable with. Then learn how to manage it and then take further calculated steps to take on more risk – eventually moving higher up the continum.”
Since risk is a non-negotiable when it comes to entrepreneurship, ultimately your goal is to decipher your baseline — the level of risk that you are comfortable with. Then learn how to manage it and then take further calculated steps to take on more risk – eventually moving higher up the continuum. You’ve heard the old adage, “the bigger the risk, the greater the reward.” If you’ve been hesitating about your next move, learn how to master fear and make risky business more manageable.
Risk Baseline: You Can Handle It?
By definition, an entrepreneur is the organizer of an economic venture; one who owns, manages, and assumes the risk of a business. This means that you undertake the responsibility to start and conduct an enterprise, assuming full control and risks. While various attributes define entrepreneurs, the common thread is risk.
Risk is defined as the potential that your action(s) or inaction will lead to a loss; an undesirable outcome. Start with establishing a risk baseline – let it serve as the basis for measurement of all other actions surrounding your business. For example, the lowest possible baseline could be “If I do X, and it leads to a loss, I won’t lose sleep over it – I can handle it.”
- Develop a list of risks that you’d like to take within the next 30 days.
- Next, assign a measurement of risk to each line item (Low, Moderate or High).
- Then develop a ICHI (I Can Handle It) column that denotes a) I can handle it or b) I can’t handle it.
Once you review this basic list, you’ll have a better idea of where your risk threshold lies. Now that you understand your risk tolerance, it’s time to manage it.
Managing Business Risk
Now that you’ve identified risk and assessed it you’re ready to manage it. Managing it could mean a couple of things. You can a) do nothing b) transfer risk or c) minimize risk to ultimately take your results from undesirable outcomes to more desirable situations.
When faced with risk, most of us do absolutely nothing. The funny thing is that ‘inaction’ is also a choice that will affect your business. But once you’ve mastered fear, start with a Plan A – the ideal scenario for any given task or decision. But when you’re dealing with external stakeholders including suppliers, customers, staff members – you will likely need a Plan B, C and D.
As a rule of thumb, you can control one variable in your business – you. But, as your company grows, more people and circumstances will be out of your control. Painful, I know – but it’s a reality that contributes to risk and ultimately determines your reward.
- Minimize and reduce risk by creating a backup plan (Plan C) for the backup plan (Plan B).
- Transfer risk by outsourcing internal operations to highly qualified and specialized third parties with a vested and monetary interest in getting it right the first time.
- Or accept the risk. A high priority project may be risky and necessary. Prepare for a loss and develop safeguards to ensure a gain. This could include increasing dedicated resources including money, staff and time to a specific project and cutting back focus in other areas.
If you are comfortable managing baseline risk in your business, it’s a bit easier to turn up the heat and take on more risk.
Turn up the Heat and Take More Risks
Just because something sounds good, looks good and feels good doesn’t make it a worthwhile or profitable risk. And yes, I know you saw your competitor run a full page ad in that annual journal – that doesn’t mean it’s smart. I heard… a good friend brought you in on this amazing deal – but if you’re betting the farm, pay close attention. The lesson? Don’t take blind risks.
Calculated and deliberate risk taking is essential to the growth of your small business. Information and action are the key ingredients to increasing your risk tolerance. The more you know – the less you fear. If you’re having trouble accomplishing your goals, brainstorm ways to spread the risk by teaming up with people that have the information and/or skill set that you need.
When you’re ready to take on more risk, first ask yourself, “What do I have to gain?” Review your current position and then decide where you’d like your business to be in the next 1-5 years. If you have great expectations then accept the fact that your success will come with great risks.
While some researchers argue that your ability to take risks is based on your cognitive skills, socio-economic background, financial situation, and education – the truth is: business is risky no matter how you spin it. What is risky to you may not be risky to someone else – it’s all relative. This is why you shouldn’t gauge your initial success comparatively to competitors, peers and industry benchmarks.
In the end, will your potential reward outweigh your risk? If so, what are you waiting for? And at times you may be faced with a game-changing opportunity to risk it all. What will you do? I often hear people say that entrepreneurship is risky. My question is, “Compared to what?” Progress always involves risks. You can’t steal second base and keep your foot on first (Wilcox).
© YFS Magazine. All Rights Reserved. Copying prohibited. All material is protected by U.S. and international copyright laws. Unauthorized reproduction or distribution of this material is prohibited. Sharing of this material under Attribution-NonCommercial-NoDerivatives 4.0 International terms, listed here, is permitted.