Risk Taking and Entrepreneurship

What is Risk Taking in Entrepreneurship?

The simple answer is – You need to take the risk and fulfill your commitments to help your Business survive -> thrive -> succeed.

You might be wondering – why risk?

Let’s just say, entrepreneurship comes with its own share of unpredictability, and unpredictability opens you to more risks.

I mean…It’s not easy to plan for the ‘unpredictable’.

And unpredictable is more pronounced when you start something that someone hasn’t done before.

To understand what is ‘risk-taking in entrepreneurship’ we need to first understand what the different types of entrepreneurship risks are.

Table of Contents

Different Type of Risks Entrepreneurs Take

Financial Risks

There is hardly any business or startup that won’t involve finance in one way or the other.

As they say, ‘It’s about Money, Honey!’ at the end of the day.

Every entrepreneur needs funds to be able to set up their business.

Now, where do you get the money from?

Usually, the money comes from personal savings or family and friends, loans from banks, or money from investors.

All these entail risks because if the business fails, all the money goes down the drain.

You are royally screwed if it is a bank’s money or money from money lenders who are going to take out your kidney and sell it in the market (it’s not that bad really…I just couldn’t stop myself from cracking the stupid kidney joke 😉).

Anyways, you are in safe hands if you have borrowed money from investors who invested money in WeWork and Theranos because those noble souls just let billion of dollars go down the drain ignoring all the red flags.

How do I know about it?

Well, mate – I just finished reading two masterpiece books ‘The billion-dollar loser’ and ‘The bad blood’. The first one is the story of WeWork’s egomaniac founder and the second one is the story of ‘maniac Elizabeth Holmes, founder of Theranos’.

Anyways, I am going off-topic.

Coming back to financial risk.

On a serious note – it is imperative that before venturing into a business, a proper plan must be made on how to raise funds and then repay it without fudging data or delivering blood testing machines that don’t work…sorry – couldn’t stop me 😉.

Moving to the next risk.

Technology Risk

Any business that wants to keep up with the ever-changing trends needs to take advantage of new technologies available in the market.

And some of these technologies do not come cheap.

In this era of the Fourth Industrial Revolution, you may have heard of some changes referred to as “disruptive” or “paradigm shifts” technologies.

Because there are a lot of competitions, and every company is working daily to outdo the other competition, upgrading to the latest technology becomes inevitable.

And while upgrading might sound like a beautiful idea, it is also a risk because after a lot of money must have been pumped into it, it may or may not yield expected results.

In the real world, how you look at this risk is a scenario where your company invests in a fancy Small Business CRM Software , only to see your employees not use it.

Imagine the time, money, and effort that went into this technology advancement and then to see it go down the drain.

Strategic Risk

Every investor would love to invest in a business with an impressive business plan. A business plan that lays out every single strategy your business has…It’s like you read the art of war and have nailed it all.

But in such a dynamic world that we live in, your strategy can quickly become outdated.

Events like market changes or changes in the business environment might just alter everything.

This means that you may struggle with attaining your KPIs (Key Performance Indicators) and benchmarks.

When this happens, it means you will have to come up with another strategy that might involve money, time, and energy all over again.

We have done strategic blunders in the past and have paid with money, time, and energy for our mistakes.

Reputational Risk

A business is as good as its reputation.

This is more so when the business is just starting, and potential customers and investors are still skeptical about it.

‘That first impression’ is what will ‘make it’ or ‘break it’ for your business.

If the business fails to create a positive reputation, especially at the initial stage, it may find it hard to gain the trust of these principal players.

Don’t forget that we live in a world of social media where news flies at the speed of light.

One negative post made by a dissatisfied customer about a business can negatively affect its reputation before new customers.

Therefore as an entrepreneur; you must be prepared for such events and have a strategy on how to douse the situation.

Market Risk

As an entrepreneur, you may have the best plan set out before you.

And yet, just a slight change in the market can render all your efforts useless.

Newmarket trends and the economy can pose a considerable risk to any business, especially new ones.

It doesn’t matter that your business has been successful in recent years; one major shift can make things go south.

A perfect example is a Covid-19 pandemic that saw a lot of business owners close shop (my heart goes out to every business and startup that failed due to COVID 19).

Loss of income and lack of patronage can drastically affect a business.

Although a proper market analysis that evaluates your product or service potentials can help forestall this, it does not entirely rule out the risk that things might not work out.

Political and Environmental Risk

Even with the proper measures, a political or environmental change can change things overnight for a business owner.

Imagine your business depends on getting the right clearance from the government and you got a partial clearance from one government 0 only to see them lose elections.

In comes the new government with its new fancy ministers.

You – mate, are in serious trouble.

I have seen a company go broke because the government changed and their multi-million dollar bled the company to death.

Environmental changes like hurricanes, tornadoes, and earthquakes can affect a business. In addition, government policies can lead to unfavorable business environments for business owners.

Wars, recessions, and many more issues resulting from government policies can also pose a problem for a business.

Competitive Risk

While every entrepreneur wants to outperform the competition, the absence of no competition might spell doom for such entrepreneurs.

The point is that a lack of competition for a particular product or service might mean that people are not interested in such a business.

On the other hand, the market might be saturated if the business has a lot of competition because of the high demand.

The risk posed here is that your business might struggle to meet up, retain a market share or even beat the competition.

This risk is one that every entrepreneur faces and while some succeed, many don’t.

All the risks listed here are some of the risks entrepreneurs have to take before emerging triumphant.

There may be more. Not scaring you. Entrepreneurship is a field full of risk landmines hidden by glossy startup evaluations.

Anyways, I am not here to bring the dark clouds.

The ones I listed above are crucial.

You must be wondering – How do entrepreneurs tackle these risks?

Let’s find out.

How Entrepreneurs Handle Risk

Entrepreneurs forecast and plan ahead

As an entrepreneur, you cannot see all the impending risks, but there is a need to forecast the inevitable ones.

It is only when you have an idea of some risks that you might have to take that you can make an adequate plan to tackle them.

This means you have to plan everything down and even have a post-success plan.

As a wise man (not me) once said ‘Failing to Plan is Planning to Fail’.

Entrepreneurs prepare financially

Every entrepreneur must prepare for how to fund their business.

You can reduce the chances of your business facing financial risk by adequately tracking your receivables.

You also need to reduce outstanding balances, pay off debt on time, and identify lousy credit to avoid it.

You must implement a standard for credit and payment to know which credit scores and payments should be attended to.

To get things moving smoothly, you may need to seek professional help. Additionally, endeavor to keep loans and other borrowings to the barest minimum.

Entrepreneurs weigh the risk

Before taking any risk, you should, as an entrepreneur, weigh the risk involved.

When you weigh your risk, you will be able to tell if the risk is worth taking or not.

And if your plan fails, it will not come as a shock since you have already made up your mind to go through with the risk regardless.

Since you have weighed your options, you will be able to come up with a backup if the business plan fails.

Entrepreneurs develop a never-give-up mentality

Because you already know that there are risks involved in every business, this mindset helps you prepare for the worse.

This also means that no matter what, you will not give up on your dreams, especially when you have strong convictions that things will work out at some point.

Entrepreneurs that are resilient eventually break even.

Entrepreneurs might employ the services of risk management professionals

There are some risks that you may not know of or even understand.

Detecting such risks will be best left to people skilled at detecting and dissecting the risks.

This is where you will need the services of risk management professionals.

Once they have identified all the possible risks, they will also help in mapping out a plan on how to tackle them.

Also, they will put some measures in place to forestall such risks from repeating.

Entrepreneurs ensure the business

Another way entrepreneurs take care of risks is to insure their businesses.

Insurance companies can come through for your business when you have issues under their coverage.

They protect your business against incapacities, liabilities, and other issues.

If your plan fails, you won’t lose so much. Some of the things you can insure in your business include:

  • Business insurance – yes, you can set up insurance for your business so that you can have some peace of mind. Then, you will worry less about risks and failures and focus more on your company’s growth.
  • Vehicle insurance – insuring your company’s vehicles is equally important in case of accidents and damages. Because of unforeseen circumstances that may happen, you cannot risk not insuring your vehicles.
  • Property insurance – the machinery you use for your business, the office equipment, and even the business building can and should be insured. Should there be a case of robbery, equipment breakdown, or fire outbreak, insurance will take care of the damages.
  • Employee compensation insurance – this covers your worker’s safety. If employees should require medical treatment due to an accident sustained from carrying out their duties, insurance can cover the expenses.

Entrepreneurs remain optimistic

One thing that distinguishes successful entrepreneurs from the pack is that they remain optimistic even in the face of uncertainties.

As an entrepreneur, the more optimistic you are, especially in your abilities and skills, the more chances you have of overcoming the challenges that come with the risks.

In fact, a study even suggests that positive feelings and optimism about ability and luck helps risk-takes succeed in their endeavors. (Source: Researchgate)

Entrepreneurs find new opportunities

Instead of giving up and throwing in the towel, resilient entrepreneurs seek new opportunities.

They even go to the extent of discovering new avenues to boost the business instead of shutting down.

Most often, their efforts pay off and they not only learn from the experience but also reinforce their confidence in the business.

Before I move to the next topic.

At the end of the day in Entrepreneurship, it ultimately comes down to how you convince yourself to take risks?

Whenever I have to start a new venture, I check my emotional readiness by asking myself a few questions.

These are the questions that I also want you to ask and then see if you are convinced to take the plunge.

To start with – I always ask myself a simple question “Why do I want to do this?”.

The majority of the time, the answer I give myself is a reason for me to drop my idea.

B.S answers like:

– John built a million-dollar company with this business

– Raghav got a 10 million dollar exit with the same concept

Are no reasons for me to start a venture.

Frankly speaking – they all seemed and sounded good when I was young.

But, having been an entrepreneur for 12 years, I know in my mind – the above answers are B.S reasons and should not lead anyone to start a company.

If you are inspired to start a company for any of the above reasons.

My answer is:

However, there are times” when I am enlightened,” and I think straight like a monk who has had a bottle of the old monk.

An answer like “We will solve a problem that definitely had a market need” is more convincing than anything else.

Once, I am convinced that I am getting into something that will be impactful and, most importantly – makes me happy.

I move on to check my risk readiness to be an Entrepreneur and there comes the next question, “Am I ready to take calculated risks?”

Before I Jump to telling you how you can better prepare to Take Risks.

How to Take Calculated Risks as an Entrepreneur?

Over the years, if there is anything I have learned about risks – it is “Inherently, we all are not risk-takers.”

We are not risk-takers as risks are unpredictable.

And with unpredictability comes anxiety and apprehensions of uncertainty.

We humans are not designed to throw ourselves in an unpredictable and uncertain situation where the startup failure rate could be as high as 80%.

So, how do you get an answer to ‘whether you are ready to take a risk by becoming an Entrepreneur or not?’

How do you convince yourself to take risks?

So, how do you get an answer to “whether you are ready to take a risk or not?”

The answer to the above question lies in your preparedness to take risks.

You convince yourself to take a risk by understanding your idea better and following steps like Market Research and Financial Planning or following all the steps to getting ‘entrepreneurship ready.’

  • I always check my risk readiness by getting my finances in shape.

I assume that I will not get paid for a year. Hence, my bank balance should be able to support me for one full year, and that’s non-negotiable (period).

  • The next step is to get my family on board with what I will do.

Trust me, they are the ones who will be an equal member of the journey as I will be missing for the majority of family time, and they will need to understand my now our financial situation better.

I ask myself, “What is it that my family has to change in terms of finances and lifestyle if I start this venture?”

So here we are at the end of how you can check your preparedness to be an Entrepreneur.

Three simple questions are all you need to answer (there are more at the end of the article if you want to take it a step further 😊)

Entrepreneurship is your calling, and it is you who must be more positive than anyone else to move forward.

When I quit my job to start my first business, I didn’t answer any of them.

But as I kept maturing as a business owner and started getting into new businesses, I started answering the above questions.

Well! I am not exactly sure about some of the answers, but then deep down, when I know, I have to start my entrepreneurship journey now.

Similarly, you, too, should be sure about the arduous yet fun journey you plan to take.

Some call it soul searching. Others call it self-introspection.

I call it, “I am procrastinating.”

I give myself a mental kick, and then I am ready to get started 😊.

You are the one responsible for the consequences of your action– hence, take a call only when you are ready for it.

Well! All is not dark and gloomy…I know the stats are stacked against me 8 out of 10 startups fail. Blah-2. The end of the world is near and what now!

Let me through some optimism to this ‘risk-taking and entrepreneurship’ topic.

Despite the risks involved in being an entrepreneur, there are still people that made it through. Here are a few of them:

3 Notable Entrepreneurs Who Took Risks and Succeeded

Mark Zuckerberg

We all know who Mark Zuckerberg is. Yes, the Facebook guy who also inspired the movie social dilemma.

Today, Mark is a famous name, but not many people know that he dropped out of college.

He so much believed in the prospects of his startup that he never bowed to offers that wanted to buy it off him.

He didn’t mind that he was still a young male with not much experience of how these things work.

Today, he has achieved so much success and has written his name in the sand of time.

And yes, Mark has made some investment risks like Oculus, a virtual reality platform that didn’t meet expectations.

However, it is part of what most successful entrepreneurs go through. Some investments will work out while some won’t.

Richard Branson

If you have heard of the very popular Sex Pistols, especially in the 70s, you may also have heard about Richard Branson.

He trolled the Queen of England with a controversial song during her silver jubilee event.

This was seen as an extreme marketing effort targeted at the monarchy.

But the particular stunt was what helped him build his record label.

Richard’s record label was quite popular, so he welcomed other prominent artists like Tina Turner, The Rolling Stones, and Mariah Carey into his label.

You may say that he took a very costly risk that could have landed him in big trouble.

But then again, had he not risked it all and taken that swipe at the monarchy with his song, we may never have heard of him.

And he still has that entrepreneurial spirit blazing hot with the risks he takes in appearances, investments, shows and many more.

Elon Musk

There is absolutely no way Elon Musk’s name will not appear in this list.

He is one man known to have faced a lot of ups and downs in his bid to establish Tesla. Yet, he did it all – spent his money to keep the company alive, borrowed money from people to pay off his house rent, among many other things.

The risks he took are the ones that brought the company to the limelight.

On an ending note:

Entrepreneurs are known to take risks when venturing into a new business. Taking calculated risk is very important to prevent unnecessary risks that could be avoided.

While most entrepreneurs have big dreams, balancing what is obtainable and chasing the wind is important.

Remember that taking risks in business is unavoidable, but with proper planning and measures, your business may just be the next big thing to happen in its industry.