How to manage risk as an entrepreneur

You can take calculated risks and work steadily toward your goals

By Harriet Genever

 

Taking risks is closely linked with entrepreneurship. You may be leaving a steady-paying job, risking your reputation with new products, and adding financial risk with a loan or investment. On top of that, there are risks involved in hiring employees, marketing strategies, and even customer service. 

Instead of being discouraged or aimlessly moving forward, you can instead work as a calculated risk-taker, who carefully takes steps toward your goals. Risk is inevitable, but by understanding that you can find ways to reduce unnecessary risk in your business and develop a risk management plan. This ongoing guide will differ for every business and is meant to be adjusted and improved over time. 

Here are some steps to include to get you started on your own plan.

Identify risk

Proactively observe and weigh the potential risks that you don’t have control over.

Action steps

Have 2-3 immediate actions you can take to mitigate different types of risks. If it’s something unexpected, such as a market crisis or equipment failure, this could potentially save your business time and money in the short term.

Employee responsibility

Give your employees an active role in identifying, managing, and mitigating risk. The more prepared they are the more likely your pre-defined actions will be executed successfully.

Document the risk

Keep written documentation for how to deal with different types of risk and how effective the plan was when those risks occurred.

 

Does risk-taking lead to success?

Taking risks can definitely lead to success— as long as you’re taking the right risks. For example, if you currently own a restaurant, COVID-19 most likely made it necessary to close your in-house dining. If you haven’t explored delivery or pick-up in the past, that may be a viable risk to take. Expanding to another location, on the other hand, maybe too much of a financial risk at this point in time, and would take further exploration and forecasting to see if it’s viable.

The truth is, we are faced with possible risks in and out of our careers all throughout our lives. Some are obvious wins, while others may take a fiscally responsible leap of faith. What’s important is looking at the pros and cons of the risk you’re considering and understanding if it will ultimately get you ahead. 

If your competitors aren’t taking the same risks you intend to, then you’re already running the chance for greater success. However, there’s a difference between taking a risk when the odds are against you versus risking with better odds in your favor. Taking calculated risks that are well thought out and where the benefits outweigh the negatives are exactly the type of risks that will lead to your success.

Be aware of what could happen if your risks aren’t successful. Is the outcome still manageable? What would happen if you didn’t take the risk at all, and what could happen if you do? No matter the decision, think of your risks entrepreneurially. 

What is ultimately going to get you further with the least bit of potential error along the way? Be inspired and excited to take risks while also keeping the health of your company at the forefront of your mind. 

Establish your business risk tolerance

No matter the risks you’ll be taking, it is important that you assess your ability to tolerate them. No matter how prepared you are, you will run into challenges and it will be important that you’re prepared to handle them. Prepare your family, employees, partners, and investors for the difficulties that could come; having support and understanding from those around you will help make things easier for you both. 

Finally, remember your dream and the reason you’ve decided to take such risks in the first place. Financial risk will likely be a large factor throughout your journey as an entrepreneur, but knowing why you went into business and that you’ve planned accordingly will get you to where you want to be. 

Successful entrepreneurship takes not only ideas but courage. Understanding your market, your assets, and the ins and outs of your goal will help you make smart decisions when it comes to risk-taking.

Read the full article here.

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About the Author

Harriet Genever is a writer and copy editor.

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