How much risk are you willing to take in this economy?

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(Copyright © 2015 by Chesney Bradshaw, all rights reserved)
(Copyright © 2015 by Chesney Bradshaw, all rights reserved)

A business owner running a large factory was closed down because of cheap imports. He then decided to become an importer himself. Things turned out all right in the beginning but he made one wrong move with a container load of goods because of a sudden currency decline and lost millions. He sat down, did some hard thinking and to rescue his dire situation started a takeaway and restaurant business. This business owner knew full well that the restaurant business is risky and made plans to take as much risk out of his new enterprise as possible.

His secret was to start small and keep things small. After opening up in a down economy, a year later he has done exceedingly well. Even halfway through his first year trading he had so many customers that the temptation was they to double up the size of these restaurant space. But he didn’t do this. Having been bitten twice before, he decided to increase his retail space only marginally more. This is meant that he has so many customers that he has an overflow on the pavement outside.

How much risk are you willing to take in this difficult economy? Do you deliberately seek out and identify ways to reduce your risk? What is your risk profile?

The prevailing myth about entrepreneurs is that they are huge risk takers. The perception is that a small business owner is Mr Risktaker personified. Yes, entrepreneurs do take risks but these are very calculated risks. While entrepreneurs may not be risk adverse, they learn to manage risk, reduce risk and pass on risk wherever they can. For example, when risk is too high for them to sustain, they would pass it on to an insurance company.

One of the biggest risk is the number one. One of everything is dangerous. One large customer. One key employee. One location. One product. Here’s where the smart, savvy entrepreneur learns how to spread risk rather than concentrate it in a single source. One communications agency had one very large contract that went sour with a public body and had to shut its doors forever. That’s after having been in business for close to 40 years.

The wide-awake small business owner doesn’t become overwhelmed by self-importance when a large customer approaches them with promises of continued big orders. They carefully weigh the situation on paper and in their heads and work out the risk that this large customer will bring with it. It’s a sad fact but the giant corporations are quick to pass on financial risk to small suppliers and only pay them after months. Any small business person worth his or her salt, quickly realises that they can’t act as a banker or financier for a large conglomerate. If the payment terms are not favourable towards them, they have the guts to turn away from these so-called large deals and walk away.

Risk comes in many forms. Competition, product life cycles, product substitution, cash flow, volatile currencies, sales fluctuations, price wars, banks, poor productivity, high staff turnover and bad advice are all potential risks. Perhaps one area of risk that is often overlooked is business advice. That’s why it’s important to not rely on one source or expert for advice but get more than one opinion before you make your final decision.

If you want to reduce the risk in starting something from scratch, starting a venture or project to generate income but need to reduce the risk, you may want to consider a new upcoming resource “Breakthrough Ideas”. It doesn’t promise to guarantee that it will eliminate risk in your new venture, but it will show you clever and practical, hands-on ways to do just that. Interested? You know what to do next.

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