What is risk in entrepreneurship?

The key to becoming a successful entrepreneur is learning how to navigate those risks. So today, let’s look at three of the potential risks you can face in business.

COMPETITIVE RISK

This describes the probability that your direct or indirect competition will affect the revenue of your business. This risk is significantly higher for startups. You can minimize this risk by doing a SWOT analysis and brainstorm your strategies in advance.

MARKET RISK

This is also called “systemic risk”. This is where your business may be affected because of market fluctuations. This type of risk may be out of your control, so it’s important to keep up to date with information and news in your niche.

CREDIBILITY RISK

This is when you market a new product or service. Having a credible brand is critical to longevity, so it’s so important to focus on quality over quantity to mitigate this risk.

How to calculate Risk

Here are some keys to analyzing and mitigating risks in your business in the most cost effective manner:

  • Assess your potential risk tolerance.

  • Start with smaller risks, then work your way up to bigger ones.

  • Make a list of all the “worst-case” scenarios.

  • Be patient and very observant.

 

HERE IS A SIMPLE FORMULA TO CALCULATE RISK:

Risk  =  Probability x Loss

Probability refers to a disruptive event, and loss is connected to the event occurrence. This is how you would measure your expected loss that may be connected to key business decisions like production, investments and processes.

 

A simpler formula is:

Risk = Probability of a failure X Damage related to the failure.

The results affect your decisions according to your risk aversion.

How much risk should you take in your business?

The more risk you take in your business, the higher the potential for reward. However, the higher the risk you take, the greater your chance of failure. If you are not willing to take any risks in your business, then you will never grow and expand.

There are many different ways to take risks in a business. You can start a new product line that is not similar to what you are currently selling or offering new services that are different from what your company is currently providing. You can also try to enter into a new market that is very competitive or introduce a new way of doing something that has not been done before.

Paralysis by analysis is the common problem that many entrepreneurs face when they overthink and overanalyse the risk, leading to more questions that stray away from the risk itself. They find themselves stuck in the middle of a decision and unable to make a choice. It can be quite overwhelming to go down that rabbit hole, so in order to avoid this problem it is important to know when to stop.

One way to overcome this is by understanding what you want from your decision. If you don’t know what you want from your decision, then it might be difficult to figure out which option will give you what you need.

Is it RISK or FEAR?

Risk taking is the act of doing something that might result in failure, but also might result in success. Fear is the feeling of distress caused by awareness of danger. Risk takers are people who are not afraid to try new things, take risks and make mistakes.

Fear can motivate the entrepreneur to avoid dangerous situations. But fear also prevents them from taking any risks at all, and it can cause them to make bad decisions because they are too afraid to face the consequences.

The only way to grow your business is to take risks. You have to be willing to take a chance on something new and different. You have to be willing to put yourself out there and make mistakes.

If you are not comfortable with taking risks, you will never move forward in life or in business.

My blog: How to break through self doubt and fear as a mompreneur may be of great help to you.

 

I’d love to know your thoughts on my BLOG this week! Be sure to leave a comment below.

Need help? Text RISK to 646-760-5480 now and I’ll be happy to send you some strategies.

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