Taking Risks in Business
Posted by Laddie Blaskowski on Mar 21, 2007
If you’re like most small business owners, you had to put everything you had on the line, based on a belief that your efforts would lead to success. Once the risk of starting up was over, other risks (with the potential of even greater opportunity) may have continued to tempt you.
When an opportunity comes along, you need to ask yourself, “Is the risk is worth the possible reward?”
Although there is no foolproof way to answer this question, making a decision becomes easier when several other questions are answered honestly:
What is my tolerance for risk? First of all, you need to understand how you feel about risk. If high stress, unhappiness and sleepless nights will be the end results of the decision, it is obvious the opportunity is not worth the reward. And it’s less likely that success will be the end result.
What is the probability of failure? You can get seriously burned if you don’t address this question. Many opportunities have come wrapped in paper that says, “You Can’t Lose!” One hard rule you need to follow is that if you don’t have the time to determine what the downside is, pass on the opportunity.
What could be done to reduce the risk? Risks are seldom fixed. If you look at the opportunity creatively and objectively, there are often many ways to decrease the downside. For example, if you were offered a large contract that would require additional capacity, maybe you could reduce your risk by subcontracting with someone else to make some of the parts.
What is the contingency plan? It’s important to have a back-up plan in case something goes wrong. Your contingency plan needs to start with the question, “If the worst were to happen, what could I do to recover?” From there, a step-by-step plan can be designed.
What do your trusted advisors think? When faced with a risky opportunity, you need to get the opinions of your advisors. Your accountant, banker, attorney or other solid business advisors can provide a wealth of information based on their professional or life experiences.
What do your instincts say? No matter how crazy it may sound, you need to listen to your “gut.” Although there may be no scientific proof as to why instincts are right, they are often the results of information missed by the conscious mind. If, despite all the positive information something still feels wrong, think twice (or three or four times) before risking your business.
Are the answers you will get after answering these questions foolproof? Of course not—that’s why they call it risk. However, by addressing these questions, chances are you will be right more often than not.