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According to Investopedia, an entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards. Deciding to leave a comfortable steady 9-5 paying job to start up and nurture a business centred around a purpose /initiative is a risk in itself. The reality is that these risks are crucial to the growth of enterprises and maintains the entrepreneurial drive necessary for a business to thrive.
Risk-taking encourages innovation, allows for creative thinking which in return gives a product/service a stand-out effect.
Most successful entrepreneurs will attribute a significant part of success in their businesses to the calculated risks they once took. The founder of Facebook Mark Zuckerberg is an excellent example to understudy. In 2004, Mark Zuckerberg dropped out of Harvard to fully commit to running his start-up, By the end of the year, Mark already built a community of over a million users. Two years later with Facebook gathering over nine to eight million users, several tech giants made acquisition proposals to Facebook with the most widely reported being an offer of about a billion dollars made by Yahoo.
The CEO of Facebook declined the lucrative offer and was driven by his vision of helping people connect and communicate more effectively which is a calculated risk that he took and has contributed to the monumental success that Facebook experiences today. Although the risk is an inevitable step to success, entrepreneurs must take the necessary precautions to minimize that risk before diving.
Strategies successful entrepreneurs take to minimize risks.
- Successful entrepreneurs must develop a low aversion for risk-taking and view risk from a perspective of being an opportunity for the growth of their business or an avenue for valuable business lessons. Lessons from failed risks help to shape future business planning and can lead to business growth in the long run. This programs an entrepreneur to develop a win-win mindset towards risk.
- An entrepreneur must have set goals and a clear vision of what they want to accomplish, this helps them predict what kind of risk they must take that aligns with their vision for the business. Risk analysis according to WIKIPEDIA identifies and analyzes potential (future) events that may negatively impact an individual, business or assets, and a combined effort of making judgments on the tolerability of the risk while considering influencing factors.
- A risk analysis informs an entrepreneur of possible risks ahead, help measure the aversion for risk, what resources they require to take that risk or its impact on the business. This in return gives an entrepreneur a cushioning effect when they eventually dive. Entrepreneurship is no longer synonymous with taking on risks blindly. It is more of identifying, understanding and managing them.
- Build a financial reserve and have multiple income streams to keep your business afloat in readiness for an unforeseen negative event. Everything from studying your market/consumers and potential competitors to taking out insurance can help minimize risk to your business. The more of this brain, pen and paperwork you do before you set out to take risks, the better off you’ll be.
- Limit borrowing ,do not mortgage valuable assets such as your home or your future while taking risk as this is one risk too many to take . If you have exhausted all possible financing options , it’s time to sit back and reconsider if proper planning and research has been done before venturing into to such.
- The importance of resource persons/professionals guiding to help make informed decisions about risk cannot be overemphasized. It may be expensive but it is worthwhile. In cases of financial constraints, join a mentoring group involving experts in your niche, this helps you learn from experts who have walked the path you are about to thread on.
- It is important to keep calm and trust the process, not every entrepreneur has a hold of risk management from the onset, studies have shown that entrepreneurs develop more tolerance for risks and can manage risks better as they progress in their careers.
The potential downsides of mistakes from risk-taking are not as bad as missed opportunities for innovation-Zuckerberg and Hoffman agree.
A lot of times people look at risk and ask, ‘What are the odds that I will succeed?’ A different way to look at risk is to ask, ‘What’s the worst thing that would happen if I failed?’” – Dave Hitz, founder & EVP of NetApp.
