When developing a business venture, wanting to know how to decrease risk is a question that comes up frequently.
When you become an entrepreneur, one of the things you will hear most often is how risky this career path is.
And there is some truth to this, but if you know ways to decrease risk, you will not have to spend as much time worrying about this.
If you want to be a successful entrepreneur, you will need to know what risks to take, and which you should not, and for the risks you do have to take, knowing what to do if the risk does not pay off.
While the image of a successful entrepreneur is what attracts so many people to want to live this lifestyle, you have to keep in mind that one in ten startups will succeed, and the rest will end up failing.
Knowing when to follow an opportunity, and having a good sense of opportunism is part of what will make you a successful entrepreneur, but you need to be able to appraise the opportunity, work out what potential hazards there are, and have knowledge in the area so you are not going in blind.
If you are short on knowledge, and do not know how to plan, you will not be able to succeed as an entrepreneur.
In this short guide we will go over the different types of risk you will need to look out for, and how you can attempt to avoid these risks!
Different Kinds Of Risk
First we will go over the different types of risks which can affect entrepreneurs. You may know some of these, but some are not as obvious, so read carefully!
You will have to be fully aware of the market which you are entering and be able to work out what competitors could affect your plans.
If there are competitors, this is an indicator that the service or product you are providing is in demand.
Economic, Environmental, And Political Risk
There will always be factors which are completely out of your control, with this covering natural disasters, economic failure, and political changes.
All of these can affect your business plan, so knowing what to do if this is the case, and knowing how likely these concerns are, is a massive bonus.
To launch your business, you will need to have a certain level of capital for your project to be able to function.
This can come from many different sources, whether this is your personal funds, an investor or investors, business loans, or even personal loans. Being able to manage this capital responsibly is incredibly valuable.
You will need to be able to evaluate the state of the market and follow any of its trends and how these are fluctuating.
If there are new competitors, you will need to know the best way to counter this, whether it be a lower price, or a higher quality. Being mindful of the market risk is part of every successful entrepreneur.
If you are heading your business, you will need to keep in mind that your personal reputation and the reputation of your business is pristine.
You could have the perfect service or product, but if people have a negative bias or perception due to any form of reputation, you will be performing at a disadvantage.
Knowing how to satisfy customer expectations is the best way to stay on top of this.
You will be much more likely to be able to attract investors if you display that you have business tactics and plans to help your business flourish.
While these plans can quickly become outdated, having a more adaptive plan will impress.
You will need to be able to deal with any technological issues which could affect your business or any potential risks in this sector.
Technology is the foundation of many businesses, so you will need to have at least some literacy in this field.
How To Reduce Risk
So now we know the potential risks, how can we avoid these and instead overcome them and not have to deal with them at all?
To be well prepared in risk management, you will need to be able to work well with your staff and prioritize your communication so you can see risks coming instead of being blindsided.
It will also help to have specific responses in place for each of the risks we have just listed.
And you will also want to embrace that your company could fail for no specific reason. But what are some more specific methods to try?
The Lean Method
This is a startup method which will give you information as well as awareness to minimize the chance of risk.
This method was started by an entrepreneur called Eric Ries and he claims that this is a good method for turning ideas into a successful product or service.
First you want to create a Minimum Viable Product or MVP and test it against your market hypothesis, this is done by testing a prototype.
Once the testing is being done you will want to monitor the data and compare it to your hypothesis, then take on consumer feedback.
Once the measurement is complete, you will want to decide whether you should finish your prototype learning from the data, or pivot your approach and start from the ground up.
Other Ways To Lower Risk
- Building your own reputation will make sure you have an active audience and a positive bias.
- Make sure you are documenting all important matters.
- Getting a good insurance package.
- Strategically employ staff who you know will be able to work effectively.
- Know all the laws which could affect your business.
Hopefully this has given you an insight into how you can lower your risk as an entrepreneur and what you can do to not have to worry about business failure as frequently.
If you follow this advice your business will be much more well-equipped to deal with risks.
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