Successful entrepreneurship involves taking risks. If you don’t embrace risk-taking, you may want to rethink being a business owner.
Countless entrepreneurs have taken risks to get their businesses to where they are now. Taking risks, however, does not mean going into business blindly and then expecting great results. Taking risks in entrepreneurship involves careful planning and hard work.
Why entrepreneurs should take risks
1. All businesses involve risk-taking
Taking risks is closely linked with entrepreneurship. Leaving a steady-paying job to start your own business is a risk in and of itself and often, requires a substantial amount of money. If your product or service has never been on the market before, you also put your reputation at risk.
On top of that, there are risks involved in hiring employees, marketing strategies, and even customer service. Entrepreneurship overall involves a great deal of risk, and you need to be ready to take these risks on before deciding to go into business.
2. Risks are calculated, not random gambles
Entrepreneurship mentor and consultant Leonard C. Green always tells his students at Babson College that “Entrepreneurs are not risk-takers. They are calculated risk-takers.”
Green went on to explain that calculated risk takers are those who carefully take steps toward their goals. These individuals do not just gamble everything into their venture—they find ways to reduce risk as they move forward with their business.
3. In the future, you won’t have to ask “what if?”
Founder and CEO of Amazon Jeff Bezos has been quoted as saying, “I knew that when I was 80, I was not going to regret having tried this…I knew that if I failed I wouldn’t regret that. I knew the one thing I might regret is not ever having tried. And I knew that would haunt me every day.”
Nobody can really be sure if risks will pay off, no matter how calculated they may be. But this should not stop you from taking risks. If you want your business to succeed, risks are necessary. According to a quote by Frederick Wilcox, “Progress always involves risks. You can’t steal second base and keep your foot on first.”
4. Risk-takers may be more content and satisfied with their lives
Most people are not willing to take risks, but a study on risk-taking revealed that there is a link between willingness to take risks and personal satisfaction.
5. You learn from taking risks
Some risks may not pay off, but an optimistic risk-taker will always look at failure as an opportunity to learn. Social Media Examiner owner Michael Stelzner writes that the willingness to experiment with new ideas is key to business growth. As he puts it, “nothing ventured, nothing gained.”
Failure will teach you how to think and plan strategically. Just remember that not all risks are good ones, and when you fail, learn from it and move on.
6. Innovation cannot take place without risks
Innovation involves changing how people do things. It is about sharing and teaching what we know, and putting new ideas into practice.
Innovation cannot happen if you will not accept the risk that your undertaking might fail. The level of risk may be lessened, however, if you make all possible calculations and evaluate which option is best before proceeding to the next step.
What types of risk should business owners take?
As mentioned earlier, every business undertaking involves risks. These are some of them:
Market risk, also known as systemic risk, refers to the risk that an investor may face due to fluctuations in the market. To mitigate this risk, an entrepreneur should develop and implement various strategies.
According to CPA Australia, these may include researching consumer trends and tastes, continually testing the market for consumer preferences, and promoting products and services that sell better during an economic downturn.
Competitive risk refers to the risk of a business owner for losses due to the product, price, and marketing strategy of competitors in the market.
This type of risk is higher for startups since they usually face competition with companies that have established their presence in the market several years prior. An entrepreneur can minimize this risk by conducting a SWOT analysis and come up with strategies to counter those of his competitors.
Credibility risk refers to the risk that an entrepreneur faces when putting out a new product or service in the market. The credibility of a brand name helps greatly in establishing a business and can influence the purchasing decisions of potential customers.
According to a study, approximately 59 percent of consumers prefer to buy new products from brands that they are familiar with, and 21 percent report they bought a new product because it was from a brand they like.
To mitigate credibility risk, there are several strategies to consider. These include building a professional online presence via your business’s website and social media accounts, offering quality products and services, and avoiding questionable business deals.
Technology risk refers to the risk of losses that business owners face due to technology failures. For example, lost revenue due to the crash of your ecommerce website, or a security breach resulting in the theft of customer data.
The best way to minimize this risk is to invest in the latest technology that is affordable and reliable. Regular maintenance and security checks should be done to ensure that everything is running smoothly and all customer data is protected.
Financial risk refers to the risk that the company’s cash flow will not be sufficient to meet its financial obligations. This is one of the major concerns of business owners around the world.
Entrepreneurs need to be careful when selecting investors for their business. In addition, a business needs strong financial backing and must maintain liquidity. These potential financial risks can determine the success of your venture.
HomePortfolio: A risk-taking success story
HomePortfolio is an online directory of home design products such as doors, windows, flooring, lighting, cabinetry, furniture, and appliances. The company’s objective is to create an online environment where great design is supported while making sure that the company provides high-end designs that are affordable to many consumers.
The company was founded in the 1990s by Tom Ashbrook and Rolly Rouse. According to Ashbrook, they built the company by first taking huge financial risks, “hitting up relatives for their first $20,000; running up over a quarter of a million dollars in credit card debt.”
They were eventually able to raise $72 million and today, the company’s online library features almost one million high-end products from 2,200 manufacturers and 100,000 retailers. The site claims it gets over three million page views every month and four million visits every year.
Today, a new management team brought in by investors has taken over, comprised of successful upper-level managers responsible for ensuring that ecommerce sites are profitable and maintain high visibility. Ashbrook said he is still extremely proud and he does not regret making sacrifices to bring their vision to life.
Ashbrook shares his tips on taking entrepreneurial risks:
1. Assess your tolerance for risk before going into business
Even when you have done everything you possibly can to minimize risk, you will face problems at some point. How will you respond?
There is a possibility that you may misjudge. It is, therefore, important to exercise self-awareness. This can help you prepare for any eventuality that may occur as you run your business.
2. Brace your family
It can be difficult to separate your business from your home life. No matter how hard you try to compartmentalize the pressure that comes with putting up a new venture, it will still affect your family.
You need to inform your family beforehand of the work you need to do and the pressure that comes with it. But you also need to tell them that they are part of your dream and that you are doing this for the benefit of everyone in the family. Your family’s support is critical to the success of your venture.
3. It’s not just about money
Every entrepreneur wants to be successful—but don’t go into business just for the money. Find your passion and turn it into an income-generating venture.
Passion will help you go through times when risks and problems seem overwhelming. Your passion can help you hurdle any obstacles that may get in the way of your success.
4. Try sky-diving first
According to Ashbrook, this is his “half-joking” advice to his friends. His point is if they go into business because they just want to experience some kind of adventure, going sky-diving might get that feeling out of their system.
Besides, says Ashbrook: “It always comes with a parachute.”
Advantages of risk taking
1. Risk is directly connected to opportunity
Customers have constantly changing demands. For this reason, businesses should be in a constant state of progress.
Business leaders recognize this, accept risk as a cost of opportunity, and then validate this attitude within their organizations. This helps greatly in realizing their goals and achieving success.
2. Those who take risks already have a competitive advantage
Since most people tend to avoid risk, those who are brave enough to take risks already have a competitive advantage.
Simply put, when most individuals stay away from risk, that means less competition for risk-takers.
Can you achieve what these risk-takers have achieved? Maybe; maybe not. But for as long as you want to stay safe—and for as long as you are content with where your business is right now—you may never find out.