Being an entrepreneur is sexy and rewarding, but it's also full of inherent risks. When you launch a startup you put everything on the line: Your financial well-being, career opportunities, family relationships and emotional health. Even the most successful entrepreneurs will tell you that when the time came to put up or shut up, inevitably they had to ask themselves: "Can I risk this?"
Since risk is a non-negotiable when it comes to entrepreneurship, your task is to identify your baseline -- the level of risk that you are comfortable with -- then learn how to manage it. Over time, you'll want to up the ante, take on more risk and move higher up the continuum. You've heard the old adage, "the bigger the risk, the greater the reward."
If you've been hesitant about your next risky business move, follow these proven steps to master fear and make risky business more manageable.
Risk Baseline: Can Handle It?
Risk is defined as the potential that your actions -- or inaction -- could lead to a loss; an undesirable outcome. When you establish a risk baseline, it should serve as the basis for measurement of all other actions surrounding your business. For example, the lowest possible baseline could be "If I do X, and it leads to a loss, I won't lose sleep over it -- I can handle it." Here's how to set a baseline.
- Develop a list of business risks that you’d like to take within the next 30 days.
- Next, assign a measurement of risk to each line item (Low, Moderate or High).
- Then develop what I like to call, an "I Can Handle It" column that denotes a) I can handle it or b) I can't handle it.
Once you review this basic list, you'll have a better idea of where your risk threshold lies. Now that you understand your risk tolerance, it's time to manage it.
Now that you've identified and assessed your risk-baseline, you're ready to manage it. Managing it could mean a couple of things. You can a) do nothing b) transfer risk or c) minimize risk to ultimately take your results from undesirable outcomes to more desirable situations.
When faced with risk, most of us do absolutely nothing. The funny thing is that inaction is also a choice that will affect your business. But once you've made a decision to master your fear, start with a Plan A: the ideal scenario for any given task or decision. Remember, when you're dealing with external stakeholders including suppliers, customers, staff members, you will likely need a Plan B, C and D.
As a rule of thumb, you can control one variable in your business: you. But, as your company grows, more people and circumstances will be out of your control. Painful -- I know -- but it's a risky reality that determines your ultimate reward. Decide how you are going to manage the risk you've outlined above. You can do one of three things:
- Minimize and reduce risk by creating a backup plan (Plan C) for the backup plan (Plan B).
- Transfer risk by outsourcing internal operations to highly qualified and specialized third parties with a vested and monetary interest in getting it right the first time.
- Or accept the risk. A high priority project may be risky and necessary. Prepare for a loss and develop safeguards to ensure a gain. This could include increasing dedicated resources including money, staff and time to a specific project and cutting back focus in other areas.
Turn up the Heat and Take on More Risk
Just because something sounds good, looks good and feels good doesn't make it a worthwhile risk. And yes, I know you saw your competitor run a full page ad in the annual business journal; that doesn’t mean it's a smart move. Be wary of friends that want to bring you in on "this amazing deal." If you're ready to bet the farm, pay close attention to the opportunity, the risk and the reward. Don't take blind risks.
Calculated and deliberate risk taking is essential to the growth of your small business. Information and action are the key ingredients to increasing your risk tolerance. The more you know, the less you fear. If you're having trouble accomplishing your goals, brainstorm ways to spread the risk by teaming up with people that have the information or skill set that you need.
When you're ready to take on more risk, first ask yourself, "What do I have to gain?" Review your current position and then decide where you'd like your business to be in the next five years. If you have great expectations then accept the fact that your success will come with many risks.
While some researchers argue that your ability to take risks is based on your cognitive skills, socio-economic background, financial situation, and education, the truth is: business is risky no matter how you spin it. In the end, the question will always be: Does the potential reward outweigh your risk? If so, what are you waiting for? And when you are faced with a game changing opportunity to risk it all. What will you do?
Erica Nicole is a serial entrepreneur, syndicated columnist, small-business expert, national speaker and Christian thought-leader. She is the founder of the small-business news site YFS Magazine: Young, Fabulous & Self-Employed.
The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprised of the country's most promising young entrepreneurs. The YEC promotes entrepreneurship as a solution to youth unemployment and underemployment and provides its members with access to tools, mentorship, and resources that support each stage of a business's development and growth.