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How to optimize risk in entrepreneurship

Risks and entrepreneurship go hand in hand. No business owner should just believe it and be passive. Of course, risks should be mitigated or at least be reduced. Let...

Risks and entrepreneurship go hand in hand. No business owner should just believe it and be passive. Of course, risks should be mitigated or at least be reduced.

Let me clarify that risk is not always bad for business and its owner. Entrepreneurs should take the calculated risk.  First of all, let us discuss what the benefits are of risks in the business:

  • It refines vision and mission of the company
  • It makes the organization more proactive in handling any kind of situation
  • It makes decision makers more aggressive
  • It helps in devising flexible strategies for the organization
  • It sends positive energy to the middle and junior level management
  • It helps organizations in reaching new height of growth
  • It helps in forming much more loyal and dedicated team for execution

However, it is an injustice to say that there are no cons of risks:

  • Frequent failure of strategies may dishearten the top management
  • Competitors may acquire the failed organization
  • Execution team may leave the organization
  • Sense of fear may develop across the organization
  • Future contracts may be canceled
  • There may be socioeconomic pressure from stakeholders including government

It is general notion that a start-up always faces a higher degree of risk. But, this is not completely true. A bigger organization will always face a higher degree of risks because of large size, huge financial obligation, bigger team, global operation etc. Shifting from one strategy to another to reduce risk is time taking and by the time it takes the alternative course of action, the aftermath of risk becomes severe and unmanageable.

In contrast, smaller organizations including start-ups can shift to alternative strategic plans soon to mitigate or reduce risk.

Let us discuss that what kind of general risks an organization may face:

  • Management risk- any of the key persons leaving the organization
  • Product risk- failure of product because of being out-dated or competitors came up with much-advanced product or associated services
  • Team risk- execution team leaving the running projects suddenly
  • Suppliers’ risk- vendors/suppliers canceling the contracts at very short notice
  • Legal risk- companies falling into litigations with competitors
  • Environmental risk- sudden development of rules and regulations by state or central government putting pressure hard to survive
  • Financial risk- inability to service debt or not meeting financial expectations of outside equity providers

A general approach for mitigating or reducing the impact of risks:

  • Try to forecast the risk- although it is difficult in changing the business environment to some extent it is possible as well as desirable.
  • Do not ignore ifs and buts- always have back up plan; be it related to product/services modification, new launch, execution team etc.
  • Communicate well inside and outside the organization- miscommunication will create risk
  • Maintain relationship- develop and maintain relationships with current customers/vendors and also with past vendors.
  • Raise finance only to the extent of requirements and stage-wise
  • Focus on cutting down the operational and other costs
  • Develop new way of marketing

 

To conclude:

A risk is a double-edged sword. Taking risk is good but mitigating the impact of unwanted risk is desirable. Understand your business and business dynamics very well and deeply. Do counter attack if possible and required.

 

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Summary
How to optimize risk in entrepreneurship
Article Name
How to optimize risk in entrepreneurship
Description
Risks and entrepreneurship go hand in hand. No business owner should just believe it and be passive. Of course, risks should be mitigated or at least be reduced. Let me clarify that risk is not always bad for business and its owner. Entrepreneurs should take the calculated risk.
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Publisher Name
Venture Care
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Business ModelManageStart




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