The other day I was talking to a successful entrepreneur that I’ve known for some time and I asked him what was the biggest lesson he had learnt as a business person. He immediately came out with this answer: don’t take too much risk. About two years ago before he started the business that he is presently running, he imported a container load of product. Everything was working out well until the local currency dropped overnight. He had not taken any forward cover and his loss was astronomical.
New business ideas are risky. No one is trying to pretend otherwise. Many of the largest companies launch new products which fail in their first year. These products are quietly removed from shelves at retail level and the product is discontinued. If large companies like this with massive resources fail, what about the person who is trying to start something from scratch. They may only have a promising idea and extremely limited resources, often having to bankroll their initial investments out of hard-earned savings.
How does one minimise or reduce risk associated with a new business idea? What precautionary measures can you take to identify the main risks involved and come up with a plan to minimise or reduce the possible risk?
Some of the more obvious risks in taking a promising idea and turning it into a product or service include inaccurate estimation of demand, not testing your product or service before you launch it on a bigger scale, underestimating the amount of money it is going to take to launch your new product or service and sinking too much money into your product or service before you have a very clear idea of how strong the demand will be for your product or service. Then there are the risks that are unforeseen. These are the risks that can catch you off guard as the currency risk hit the successful entrepreneur. The knock was so hard that he vowed to get out of that business immediately and it into something safer. He came up with an idea for a completely new business that had not been tried out in a local suburban market before. He tested out his concept using a small format to minimise risk and expenditure and only scaled up once he knew that he had a proven business model.
Risk that needs to be identified includes competition, product life cycles, sudden and rapid product substitution, poor productivity, bankers calling in their loans at inopportune times, cash flow problems, fluctuations in sales, a narrow customer base, product quality, high staff turnover, overreliance on staff with specialised skills and bad business advice.
These are just some of the areas of risk that need to be considered. Complacency can lead to an unforeseen risk That can blow your idea out of the water. It’s no use just doing the risk analysis before you start your business – it should be an ongoing, regular part of your business operation. If you are able to detect risks early enough, you can at least do something about them.
Starting a small business from scratch can be highly rewarding both personally and financially but a conservative approach needs to be taken towards risk. If you are just starting out or want to start something of your own, you may well want to grab a copy of “Breakthrough Ideas” which provides a step-by-step approach towards coming up with a new business idea, turning it from a mere idea into a product or service and reducing risk in key areas. Even if you haven’t got an idea that you think could make the cut, a copy of this resource may help trigger your search for a new idea that you could over time turned into a source of income generation.