As much as no one likes to think about it, we must face an important truth. Every business faces risk. In fact, without risks in entrepreneurship, a company’s growth will grow stale. The problem is not every chance you take works out. Some pay off big time, while others can be damaging.
How do you identify opportunities from potential pitfalls? Whether you avoid risk because you are uncomfortable with change or embrace it with impulsive spontaneity, you need to understand how to discern the kind of risk you will face.
But before we dive into the types of risks in entrepreneurship, let me tell you a little story…
About five years into starting my corporate, private security business, we gained the attention of a Fortune 500 company. They contacted us saying they were interested in buying our business! After looking at their proposal and going through negotiations, we decided to sell. The company was allowed to make payments to us as part of the agreement. We also would continue working for them as their Branch Managers in the area. This decision seemed like such a small risk that would later turn into a much larger one.
I still remember that Tuesday my phone rang. As with most life-changing moments, the day started like any other. I woke up, hustled myself and the kids out the door, and dropped them off at school. Then I got the call. We were to close the office and go home. No one had a job anymore.
We were out of business.
There were so many questions! What about all of the employees and the clients? What will happen to them? Long story short, the company that bought us was bankrupt and had no obligation to anyone.
So there we were. The money they still owed us? Gone. Our jobs? Gone.
That small risk was growing into something bigger by the minute.
But my business partner and I decided we couldn’t just walk away. Instead, we chose to take the more considerable risk by restarting our business back in the community. We kept all the employees in our area and continued servicing our clients. The paychecks that were just issued all bounced, so we had to come up with the money to pay our people. We had a hard road ahead of us, but we persevered.
Here we are, 29 years later. Taking that considerable risk has paid off because the company still thrives today.
Main Types Of Risk Businesses Face
Any new adventure for your company comes with uncertainty. No matter how great an opportunity is, the future is unknown, and so is the outcome. This is why understanding risks in entrepreneurship will help you identify opportunities worth acting on.
As the leader of your business, you should fully embrace your company’s future success. This is why you spend so much time crafting your vision and goals. (And revisiting them regularly!) When we took the risk of selling our company, we knew we would stay involved in the community by managing our local branch. With this decision, we could remain in the business and rebuild what was nearly lost when the parent company went bankrupt.
Opportunities may come that seem promising, but what is the cost of compromising your core values? If it means giving strategic control to someone else, you will no longer have a say in the future of your own business. When evaluating risk assessment, make sure you are not being pushed out.
Everything that happens day-to-day matters. It’s not just the things you and your staff do that make a difference but also those that are out of your control. Natural disasters can temporarily halt operations, vendors may go out of business, or you may experience power disruptions. The best way to overcome operational risk is planning.
Before hiring staff, make sure your company is set up to support employees. You’ll also want to review your insurance policies to determine how you are supported if you or your business are significantly impacted by an event out of your control.
When you run a business, you will have to maintain specific standards of compliance. Each industry has its own unique set of regulations, and every geographic region has a certain set of requirements. If your business doesn’t remain compliant, it can result in expensive fines and even loss of your business.
You may be thinking, “When I set up my company, I checked off all the boxes. Everything is up-to-date.” That’s awesome! I’m so glad you did your due diligence. Remember, when a new opportunity arises, it may come with additional compliance procedures. For example, suppose you are a bridal shop that wants to offer champagne to its customers. When adding this service to your business model, special licensing and training may be required.
You might think that making money is everything in business. Well, that’s only a small piece of it. Public opinion of your company can make or break you. Many things can tarnish a business’s reputation. An employee with poor judgment could bring you under scrutiny, a faulty product gets recalled, or a choice you made may backfire. If customers lose confidence in your business, it can hurt your bottom line.
Even if your reputation takes a hit, it’s not the end. This is the time you do what it takes to restore faith. When we got the call to close our office, we knew we were at a crossroads. It would have been perfectly acceptable to do as we were told and send everyone home. But we wanted our employees, clients, and community to know that we had their backs. So, we pressed forward against all odds. And taking that risk paid off.
Identifying Worthwhile Risks
There’s no way around it. If you want to grow as a business owner, you have to take risks. When taking a leap, we all wish there were some way of knowing how things will turn out. Unfortunately, that’s not how it works. However, you can gauge the potential impact a situation will have on your company. If an opportunity aligns with your values, keeps you compliant, and protects your reputation, chances are it’s a risk worth taking.