Entrepreneurship associated with risks
It is a well-known fact that entrepreneurship is associated with risks. There are many examples of entrepreneurial businesses that lost most of their capital investment during failed start-ups.
Since many claim that there are risks involved in creating an entrepreneurial business, it is worthwhile to compare a failed entrepreneurial startup with a successful entrepreneurial startup. When analyzing a failed start-up, poor planning, failure to analyze the market and structural emptiness emerge as reasons for the failure. Successful start-ups, on the other hand, are characterized by having a clear goal, having knowledge of the business and competitors and implementing a strong business ethics system.
In both cases, there is an unavoidable risk. However, there is a big difference between the two businesses. A failed entrepreneurial business takes a great risk by entering the market without a proper strategy but, a successful entrepreneurial business only takes calculated risks or intelligent risks. When starting a new entrepreneurial business, everyone mentions how easily that business can fail. This is certainly true but it is possible to make an entrepreneurial business successful by minimizing large risks and focusing on calculated risks.
Calculated risk
For risk-taking to be an art, it must be a calculated risk. A calculated risk is a risk that can be explained as a careful consideration of all different costs that could incur and the possible potential profits. These types of risks require the ability to deal with insufficient information and to act on a risk alternative using the skills needed to achieve realistic goals.
If there is a big problem in the entrepreneurial business, one can find a number of options on how to access it. Each of those solutions has its own inherent benefits and disadvantages and it is the entrepreneur’s responsibility to find out what works best for the business. It should be noted, however, that it is not possible to predict how the outcome will occur once the calculated risk has been taken. A decision has the potential to fail as much as it can lead to future success.
Different types of risks faced by an entrepreneur
Entrepreneurs are by nature risk takers and they work with a clear action plan to launch a new product or service to fill a gap in the industry. Many entrepreneurs use their own savings as investments to start a business and take even big risks such as leaving their stable jobs to start the venture.
Many entrepreneurs do not have a fixed monthly income from the new venture. With no assurance of success, they still sacrifice the quality time spent with family with the hope of accomplishing their goals. Therefore, it is important for any startup entrepreneur to consider all risks prior to starting the respective venture.
In entrepreneurship, risk is often used as an empty word to describe judgments taken during various uncertainties. But considering the concept of risk broadly, understanding the type of risk and how it affects the respective entrepreneurial business is essential for success. There are various types of risks.
Financial risk
An entrepreneur needs investor loans, their own savings or family funds to start a business. One main risk entrepreneurs face, when launching a business is the financial risk. Steps should be taken to get insurance cover against them. Financial risk can be identified as the risk where the cash flow of the business is not able to meet its financial liabilities.
For every entrepreneurial venture, it is important to have a financial plan that shows revenue projections, accurate plan of how to recoup the money spent, the expected return on investment and the risk of bankruptcy.
This risk is not limited to a sales deficit or high operating costs, but even includes capital funds. Investors must be careful in their choice and determine whether the return rate and share size of the business are reasonable for the amount of funding provided.
Strategic risk
An attractive business plan will attract many investors. However, in the rapidly changing modern world, it is possible for entrepreneurs to choose incorrect strategic plans which would result in the inability to reach its benchmarks and respective key performance indicators. In such an instance entrepreneurs should act as calculated risk takers to take careful action towards their goals. Risk is unavoidable but businesses need to find means to minimize unnecessary risk and implement a risk management plan.
Technology risk
Technical risk is the risk of loss that business owners face due to technical failures. In order to reduce this risk it is advisable to invest in affordable, reliable and updated technology.
Market risk
Market risk occurs as a result of market fluctuations. By developing and implementing a variety of strategies that are aware of potential changes or obstacles in the market, these risks can be minimized. When the economy is in recession, people tend to give up indulgence products and buy only the essentials. During such a time, when a competitive business introduces a similar low cost product, the market share will be taken over by them. Therefore, entrepreneurs must regularly conduct market analysis to identify such market threats and risks.
Competitive risk
Competitive risk is the ability of businesses to directly or indirectly compete with the income of an entrepreneurial business. This type of risk is high for beginners because their competitors are established businesses. It is always important for entrepreneurs to be aware of their competitors and their conducts.
Reliability risk
Reliability risk is the risk an entrepreneur come across when launching a new product or service to the market. It is a known fact that consumers tend to purchase known brands rather than trying new ones.To minimize the risk of reliability, there are several strategies to consider such as focusing on delivering quality products, continuous promotion in websites and creating awareness through social media.
Reputation risk
Everything depends on the reputation of a business and reputation is especially important when launching a new product. The first impression or experiences of the initial customers do make a huge difference to the reputation of any entrepreneurial venture. A single adverse note that an unhappy customer leaves on the internet can cause a huge loss of revenue. Reputation risk can be managed through a strategy of building relationships with customers and other stakeholders who communicate product information.
Environmental, political and economic risk
There are many risks that can not be controlled by a good business plan or proper insurance. Natural disasters, hurricanes, tsunamis, epidemics, wars and economic depression are all risks to companies and new entrepreneurs. A country can have a strong market for a product, but at any time the country can be unstable and insecure. Even supply, tax rates or tariffs may change at any time, depending on the political climate and as a result, trade may be difficult.
Reasons for taking Risks
Taking risks is essential for successful entrepreneurship. If you do not accept the risk, it may be appropriate to reconsider becoming an enterprise business owner. Successful entrepreneurs always take different risks and risk taking has become a main reason of their triumph. Therefore, it is worthwhile to consider why the calculated risks should be taken.
Prevention of future regrets
No matter how calculated, no one can say for sure what the risk will bring. But that should not be taken lightly as progress is always associated with risk. Failure is unfortunate but failure to try, will lead to regret later on. Risks must be taken to avoid that future regret.
Learning by taking risks
Even if some risks have negative consequences, it is also a learning opportunity. The ability to try new ideas will ensure the growth of the venture. Disappointments will encourage entrepreneurs to plan better and act even better in the future. Whenever failed in entrepreneurship, it is important to learn and move on.
Opportunity for innovation
Innovation is about altering the way things are done currently. Customers have ever so changing requests and therefore there are constant opportunities for new businesses. Innovation includes sharing of what an entrepreneur knows and the implementation of new ideas as a constant progress.
Entrepreneurs must recognize the risk as a cost of innovation. Therefore, it is important for the entrepreneur to accept the risk of failure. However, the risk level can be reduced if all possible calculations are done and an assessment is made to identify the most suitable option before proceeding to the next step.
Competitive advantage
As many people tend to avoid risks, entrepreneurs who are brave enough to take the risk gain a competitive advantage from it. When most people are away from risk, there is less competition for risk takers. This means that if an entrepreneur finds a valuable opportunity and no one else offers options for it, this may be the only business that communicates with customers and reaps the benefits as a result. Therefore, it is advisable to keep competitors in mind whenever the requirement arises to take a risk.
Steps to take risks
It is important to identify certain precautionary steps of risk taking before actually taking these calculated risks.
Being diligent
Decisions should never be based on emotions. Instead, it is appropriate to justify ideas logically and evaluate all minor details methodically. The first choice should be divided into smaller decisions. Those small decisions should be considered as independent risks that, lead to the overall goal. It is helpful to seek the advice of a trusted advisor, as not all information that you think is trivial, can be scanned on your own.
Expecting mistakes
When an entrepreneur seeks advice from any trusted advisor, surface problems can be detected before they arise. For instance, ways for the business to respond if money is lost on a transaction, identifying the course of action if a partnership breaks down or, when a project is delayed, methods to deal with the consequences.
Develop an action plan
After spending the time and energy to gather all the necessary data and information an entrepreneur needs, a roadmap should be created. By making a well-constructed action plan with a list of possible outcomes, it is possible to evaluate how the risk can be avoided.
Data trust
An entrepreneur should regularly research and analyze data. On that data, new decisions and related risks should be calculated based on past errors.
Preparing for change
Sometimes an entrepreneur has to revise a planned approach. A budget can be changed and a partnership can be forged. It is always advisable to be prepared for change.
Success through risk
Taking risks can certainly lead to success. Success is unavoidable as long as an entrepreneur takes the right calculated risks. Many fruitful entrepreneurial ventures started during theCovid-19 pandemic are those that started with such calculated risks.
Every person is exposed to potential risks throughout their lives, both inside and outside of their careers. Some of them are obvious successes while others can be financial failures. Success is achieved through well-thought-out risk-taking.
Establishing risk tolerance
Whatever risks an entrepreneur takes, it is important to assess their resilience. No matter how prepared, one must be determined to face the challenges that lie ahead. It is also important to prepare ones’ family, employees, partners and investors for possible difficulties. It is important for entrepreneurs to always remind themselves of their initial dream and the reasons behind the risk taking in the first place.
Success can be achieved by constantly remembering the reason for entering the business and the strategies that were devised accordingly. Successful entrepreneurship requires courage. Understanding the respective market, their assets and entrepreneurial goals will enable entrepreneurs to make better decisions when taking risks.
Characteristics of a risk taker
Entrepreneurs will grow their businesses by taking only calculated risks and not following every idea. The entrepreneurs who tend to take calculated risk can be identified as follows. These traits may be inherent or developed through experience.
Optimistic attitudes about abilities
Many risk-taking entrepreneurs are inherently positive and optimistic. As an entrepreneur starting an entrepreneurial project, having faith in their own decisions will lead to success.
Easy decision making
Even if an entrepreneur is pursuing a new business or creating a new product, risks must be taken. Here, successful entrepreneurs often make direct decisions, stand by them and move towards success.
Agility and adaptability
When there is uncertainty, an entrepreneur needs to take steps to prepare for any possible outcome. If a new business or venture is not going as planned, it is essential to adapt new methods diligently.
Giving priority to action
It is not enough for an entrepreneur to have an innovative idea. It is important to make plans to implement it as a business project. Entrepreneurs will be successful if they create the desired action plan and work according to that plan.
Conclusion
Taking risks is essential for the success in any entrepreneurial venture. For risk-taking to be an art, it must be a calculated risk. Many entrepreneurial ventures face failure as they take great risks by entering the market without a proper strategy. Many successful entrepreneurs claim to have only taken calculated risks or intelligent risks during their business decisions. Entrepreneurial success is achieved through well-thought-out risk-taking. Whatever risks an entrepreneur takes, it is important to assess their resilience. It is important for an entrepreneur to constantly remind themselves of their initial dream and the reason behind taking such risks. Successful entrepreneurship requires not only ideas but also courage.
