Entrepreneurial Risk Management: Tips and Best Practices for Success

Entrepreneurial Risk Management: Don’ts and How-to Dos that will enable you to excel

Enter any new venture, new business and you’re bound to take some risks. An entrepreneur makes decisions which affect the probability of success or failure in his business throughout the day. Risk is inevitable in any business, but establishing sound risk management mechanisms assists to overcome South African business impediments and deliver long-term business development. Some guidelines and tips for entrepreneurial risk management are given below.

Take the time to remain fully informed concerning the market

Another danger lies in the inability to develop a product or service that customers do not need and in which they are unwilling to invest time and money into the creation of. This means that before you launch your business, make sure that there is market need for whatever you want to sell. Market research consists of asking potential customers, evaluating the current and future market prospects, studying competitors, and consulting professionals. This due diligence on the front end will go along way in reducing this silly cycle on the back end.

Understand Reasonable Revenue Forecasts  

Financial projections similar to expense and income statements bring your planning scenarios into reality. The best practice is to use the most conservative assumptions on your revenues and growth rates especially in the first years after implementation. Carry out various what-if planning options: the case of success, the case failure with varied considerations in between. Find out when you will make your first dollar and how soon you will start making some money. It will be possible to spread risks and invest properly if you set correct expectations that are attainable.

Start Small and Bootstrap

It’s better to ‘test the waters’ immediately rather than invest heavily in product or service at the beginning and team. Growth should be gradual and cause the policy of reinvestment of profits into the business. Bootstrap as much as you can; ensure that you use your own money or your friends and families’ money instead of involving the third party too early. It is conservative and enables you to scale up rapidly, exclude unnecessary over head initially and create credibility and the market need before committing a large amount of resources.

Obsess Over Cash Flow 

Cash is the life-transforming element for startups, and having too little cash, or running out too quickly, is one of the major causes of startup failure. Establish professional financial requirements at the Institute and thoroughly oversee all the financial aspects on weekly or even daily basis. Emergency reserves and lines of credit which may can be used when revenues are low should be put in place in readiness for bad weather days. Minimize your expenses wherever possible and covet those large capital outlays until your cash flow becomes more predictable.

This stage ends by being tested and validated with the customers

Do not, therefore, spend years of research and development to arrive at the best product or the best solution to offer but go for the minimum viable product. Create a minimum viable product quickly and cheaply then expose it to real potential users as soon as is possible. Remember, adjusting, altering or even potentially reversing in accordance with or due to market feedback. This way of taking an iterative approach means you learn early on and fail cheap until the right product is introduced. 

Assemble an Advisory Team

Sometimes, those barriers are hard to predict and even a founder cannot necessarily identify every blindspot. That is why the formation of an advisory team is such a crucial factor whenever managing the risks in business nowadays. Recruit 3-5 trusted advisors with expertise in areas like:

• Finance

• Legal 

• Marketing/branding

• Technology  

• Industry-specific 

Consult with these specialists as needed for direction on strategic matters, as well as third-party opinion on issues, and coaching concerning how to minimize risk in decision making. Liked the focus on the topics that advanced users can give seasoned input which could prevent you from making costly errors.

Negotiate Win-Win Agreements

When dealing with any issues of partnerships, vendors, finances, and clients’ contracts, be very cautious during the first stages. Worst case scenarios for those bad deals and how you can secure yourself should they happen need to be considered. In competitive third party relationships it is necessary to identify objectives, rewards, restrictions and ways to part company if presumed goals cannot be achieved. It is very risky for startups to get exploited by rather bigger and possibly more experienced counterparts. Therefore, always investigate on the negative side during negotiations.

Maintain Work/Life Balance  

Starting up a business is perhaps the most challenging activity one can undertake, taking a lot of commitment, hard work and often sacrifice. But efforting to the point of exhaustion in fact decreases rather than increases your chances of creating a sustainable firm long term. When you are an entrepreneur, there is need to power yourself, get ideas, work creatively and have a strength to ward off all forms of obstacles You need energy, inspiration, creativity and resilience. Good self- care through adequate sleep, better diet, exercise and balance between work and personal life. You need to remember that entrepreneurship is not for a day, week, month or a year, but for a lifetime. Pace yourself.

We should not assume that risk is a part of being an entrepreneur and that there is nothing that can be done about it, with a proper execution of risk management you will be able to identify which risks you are facing, take the right decisions and raise your chances of running a successful business. If you have a good plan, dedicated and obsessed with the customer, if you are patient and passionate about what you are doing and a pinch of luck – the dream of an entrepreneur is possible.