One gentleman by the names Henry Kravis once said; ‘A real entrepreneur is somebody who has no safety net underneath them.’ Now, you may or may not agree with this – and that is your business anyway – so I won’t interfere with your judgment. But I guess you appreciate one element that sometimes makes an entrepreneur very exposed – that is business risk. Occasionally when you meet a person who has a skewed idea about this thing called ‘business risk’, you just see someone who will not invest a dime, no matter what language you use to entice him or her to invest. Haven’t you met such? And yet there are also guys outside there that are attracted by risky ventures. But what must an entrepreneur know about business risk?
- Business risk may be psychological or real – but neither should hinder you from pursuing your entrepreneurial dreams. For a start, if you think business risk will kill you, emigrate from the entrepreneurial planet – and find space to settle in a planet with minimal risk. Moreover, you can’t totally avoid risk, can you? Many aspects of life entail risk. Additionally, if you can’t define the risk and quantify it in monetary terms (though some risks are quite difficult to quantify) then you may just be having a ride under the umbrella of risk. Sometimes even other people can create unnecessary fear in you as a strategy to discourage you. You have come across some people who tell you not to dare with a certain type of business – when they are raking in tens of millions in profits in such or similar enterprises, haven’t you? If for example, you can’t start an enterprise simply due to fear of competition, then you can’t be an entrepreneur.
- The scope of risk is wide but you need to know and manage the areas that mostly affect your enterprise. Business risks include all things that threaten your enterprise’s survival, sustainability and growth, profitability etc and these factors may be classified into country, compliance, concentration, credit default, debt recovery, currency, investment, interest rate, liquidity, trading position, operational, reputational, pro-cyclical, environmental, technological risks and others as may be relevant. These risk areas come with a host of factors that can trigger related risks. Don’t you think so? Even aspects such as the level of investment, scope of operation, people involved etc can create business risks.
- Knowledge should eliminate or minimize the impact of risk. Just imagine that you come across a friend or relative who invested half a million dollars in an enterprise, without any knowledge about the dynamics of that enterprise – I mean the core things that make the business work or not. He or she may just look blank after losing all the money – while you are boiling about his or her level of ignorance. But the money is gone – their money, and not your money anyway. Now, investing without adequate information is more risky than business risk itself, isn’t it? Knowledge should eliminate or minimize risk. Ever wondered why big enterprises hire damn expensive risk managers? Expensive knowledge is many times cheaper than ignorance – your enterprise can avoid losing fortunes by making use of knowledge, no matter the cost. Many enterprises today deploy risk management tools that add a lot of value to the business. You have to understand the risks, know that risks change with various factors, understand their impact, plan for them and assess the impact of your intervention. There’s no short-cut.
- Risk is a trade off – usually the higher the risk the more the returns. Now, you may ask yourself why things are this way. That is a topic for discussion on another day. But do you think you can just do what every Tom, Dick and Harry does – including where and the way they do it – and you make it big? Of course not. You have to go beyond the normal into the abnormal and the unknown – with all the associated risks. Fishing in deep waters brings forth a big catch. Are you getting what I’m saying? If you are a risk-averse entrepreneur then you can only settle for peanuts in returns. Why not venture out to the risky areas and check them out?
In summary, it’s vital for an entrepreneur to know some key facts about business risks. Many aspects of enterprise management are associated with risks. Investing resources, procuring machinery, production, engaging personnel, launching into new markets, researching and developing new markets etc all have elements of risk in them. As a wise entrepreneur, you should strive to understand and manage risks – otherwise risks will manage you – and eventually you will become a risky entrepreneur. Try and thrive on calculated risks. Millions of individuals and enterprises have done it and they have been successful – what about you? You are not a failure – or are you?
The Wise Entrepreneur