While the prospect of making one’s own decisions and being in charge of their own destiny is very exciting, a startup is not easy to establish. Risk is an inseparable aspect of a person who decides to travel the path of entrepreneurship. Risk-taking is glued to the term entrepreneurship, and the two cannot be considered different in any dimension, especially for startups. The numbers are alarming: only 44% of startups survive more than four years, and only one startup out of 10,000 is becoming a giant. The reason: poor risk management. If you are determined to succeed as an entrepreneur, you have to be willing to accept the risks and hurdles that come with it. Starting a startup is innately a risky move. To start a startup and keep it afloat, you often have to put your career, your personal finances, and even your mental health into play. For most startups, the challenge is to avoid harmful risks while actively seeking and managing smart risks.
Here are five things about risk-taking and risk-management that you need to be aware of as an entrepreneur and how you can mitigate risks by adopting efficient risk-management strategies.
Taking Risk is Necessary
Before venturing into the world of business, one must first say goodbye to one’s salaried job and, in some cases, to one’s career. Some people have the luxury of plan B to resume their careers in case things are not going well, but this is not valid for everyone. For most startups, there is no guarantee of a personal income, especially for the duration of the first few months and years of their business.
Some entrepreneurs are able to start their projects, relying solely on external financing. This usually means contributions from angel investors, grants and government loans, as well as crowdfunding fundraising campaigns. Many entrepreneurs, however, need to tap into their own bank accounts and personal savings, to begin with.
There are risks associated with being an entrepreneur, and one must be aware of them before making a decision to make the journey on the entrepreneurial road.
Risks Can Be Reduced by Finding the Right Solution
One common ‘problem’ with entrepreneurs is that they feel as if their proposals are what the needs of others are. More often than not, the case is the opposite. It is essential that entrepreneurs and startups understand their customers’ needs and then propose solutions. The successful startups are the ones who follow a market-centered approach, which allows them to understand and serve their customers better. This allows them to minimize their risks and gives entrepreneurs the opportunity to focus on other matters. Following certain strategies can help a startup get around the risks of being rejected by the market and eventually overpowered by the competition.
To minimize the risk, it is essential to have a plan that puts the startup in a position to expand its product line and stay ahead of its competitors by focusing on coming up with just the right solution for your consumers.
Copying Is Unnecessary Risk-Taking
While copying a business model of other companies might seem easy and high-paying, it is an illusion that copying is a way to acquire success easily. Being original and innovative is the key to being a successful entrepreneur. Those who aim to copy only see the flowery successes of the ventures and are unaware of the struggles that were faced. Moreover, copying makes it difficult to get your product recognized since you already have active and stabilized players in the market that you have to deal with.
Instead of following in the footsteps of another company, you have to be a leader. Many entrepreneurs think they can predict or reduce risk by mimicking previous success stories like Google and Twitter. But one thing to be remembered is, entering a congested space to capture customers is riskier than attracting new customers in search of a solution. Customers like leaders, not followers. Target the customers and attract them with innovations all the time; that is the key to becoming a successful startup.
As an entrepreneur, you need a plan to regularly make your own offers obsolete before customers send you negative messages. Innovation must be continuous because it is difficult to recover from a tarnished image. Abandon conservatism and opt for a break, because it’s the only thing that will make you stand out.
Taking risk is mandatory if you wish to follow your ambition
There’s no such thing as playing safe when it comes to being an entrepreneur. Do not rely on cautious projects to reduce risk. Investors do not fund the most conservative or optimistic projects, as both involve a lack of commitment or homework. Opportunity and revenue projections based on a thorough analysis of markets and customers are a smarter risk. Measurements and economic intelligence also mitigate risks. Have the courage to go all-in with your ambitions. Playing safe will leave you at mediocre levels, and you would realize that the venture hits the glass-ceiling way sooner than expected. Work hard, and with dedication, try your best to make your ambitions a living reality.
Strategizing can help you with risk management
Remember, strategizing is the key to surviving the fierce competition in the market. As an entrepreneur, you might be fluid with innovation and executing exciting ideas, but a lack of strategy can make all the efforts redundant. Strategizing is essential for ensuring the growth of any startup, and entrepreneurs must be mindful of this. One important aspect is budgeting; entrepreneurs and startups need to be extremely aware of their spending. Inexperience can cause you to spend unnecessarily, resulting in cash flow constrictions and liquidity issues.
Let’s go with the example of marketing. Too many entrepreneurs put all their resources into a big production or promotion effort that they cannot measure. As a result, they get short of cash. Marketing plans are great, but they may be counterproductive if they are not backed by thoroughly planned strategies. The key is to strategize; create your business with a minimum of external financing. More money is not likely to solve your problems or reduce your risk. Strategically, you need a plan to survive through organic growth and little outside funding.
Another strategy can be to form mergers and partnerships. Finding win-win partnerships is a manageable risk, unlike a battle where there will only be one winner.