It’s virtually impossible to run a business without taking risks.
In fact, it’s the potential for losses that scares many people away from entrepreneurship. Not everyone is willing to stake precious resources on a venture that’s likely to fail. Those who run their own businesses have to live with the risk of making big losses constantly dangling over their heads. They only stick at it because they believe their risk taking will yield them worthwhile returns.
It’s dangerous to take business decisions without weighing the risks involved. Your best bet is not to rush into a new opportunity in your industry or market just because it promises fat gains. The smart businessperson approaches such opportunities by comparing its pros and cons. A large fraction of business failures happen because the people in charge of those businesses didn’t properly assess the risks attached to their decisions, or didn’t respond appropriately to the results of such assessments.
Some business risks you may encounter
- Financial risk, which have to do with how your business’s finances are handled and what factors could turn it in the negative direction.
- Operational risk, arising from your business’s internal processes and procedures, and how they affect the business.
- Legal risk, tied to the regulatory and general legal framework meant to guide the activities of businesses within your industry.
- Economic risk, related to the condition of the economy as a whole and how it affects sales and other aspects of your business.
- Strategic risk, associated with operating within your industry.
Steps you should take
Here’s a stepwise guide to taking calculated business risks.
Let’s say you want to expand your product line to include new items. You think the new items are going to be a hit at the market, because it appears there’s growing demand for it. But unless you’ve done your homework on what the potential demand and existing suppliers of that product actually look like, your jump into it might produce significant losses for you.
This is the case with every other type of business risk. Always be sure you have all the information you need to help you make the right decision.
2. Examine the costs and benefits
If you’re going to take risks that’ll pay off, they’ll have to be evaluated beforehand. Examine their benefits and costs, compare these, and decide whether they’re worth pursuing. Of course, you should only go ahead with projects which could give you more than they’ll gulp, or won’t severely impact your business if they don’t work out well.
3. Define your goals
Set your goals for your actions clearly. What do you intend to achieve? And how do you intend to achieve it? Split the process up by measurable milestones, and let these lead up to bigger, longer term goals.
What goal setting helps you do is to make the whole process more manageable. You’ll have an easier time executing your plans if you know exactly what you are chasing, and have milestones along the way telling you that you’re nearing your ultimate aim.
This also gives you more control over situations, and potentially reduces your chances of failing at your project.
4. Be creative and cautious
Thinking outside the box can get you outside the crowded competitive space and into an arena of untapped opportunities. But there’s also a risk that your ‘out of the box’ idea might turn out very badly indeed. You need to strike the balance between creativity and innovation on one hand, and reasonable caution on the other.
Work with bright new ideas, as long as they have the potential to contribute to business growth in the long term.
5. Keep your eyes on changes in the market
Watch industry or market changes, and take appropriate action in response if it’s required. In a world of rapid transformation and disruption, not minding the trends could be counter productive for business.
Be proactive. Don’t wait for the currents of change to drive you about. Stay ahead of the curve. Monitor consumer tastes and industry practices, and continually improve yourself and your business.
6. Always be ready to reorganize your plans
This follows from the previous point. Nothing always remains the same, so you should be prepared to adjust your plans as the circumstances demand. Rigidly fixing your hopes on a single line of action might not augur well for you if you’re faced with an unexpected turn of events or conditions.