Mitigating risk in business is one of the most crucial elements of success. Here are the fundamental ways entrepreneurs handle risk and failure.
There’s no such thing as a guaranteed success in the entrepreneurial world. No matter how confident you are that your core idea is viable and your business plan considers every eventuality, risk in business is always there. You can do everything right only to see a natural disaster tear down everything you worked so hard to build.
The COVID-19 pandemic that struck in early 2020 has been a stark reminder of this. How many seasoned professionals actioned finely-honed plans for brick-and-mortar enterprises around the start of the year, having no way of knowing what was about to befall the world? It’s difficult to acknowledge that even the best strategy can fail, but it’s necessary.
If you’re interested in starting a business, you might be curious about how entrepreneurs are supposed to accept that their ventures are risky, yet persist despite this awareness — and how they find ways to reduce that risk. Here are some core tips about how entrepreneurs deal with risk.
#1 Entrepreneurs keep their houses in order
It’s practically impossible for the average entrepreneur to fully separate their personal and professional lives because the former drives the latter (though they can certainly separate their individual payments: PayPie has a good guide to this). Business ventures are typically funded through personal savings and are kept afloat by them when they struggle. For this reason, before you even consider launching a business, you need to sort out your personal finances.
Are your savings accessible? Putting money into investments is often a good idea, but if you need capital quickly, it won’t be much use if your funds are tied up. It’s a challenging balancing act. You also need to ensure that what you do through your business can’t cause lasting damage to your personal finances: the point of registering corporations is that you don’t need to personally shoulder the debts if they need to be dissolved.
Additionally, your home is your biggest asset and could well be serving as your office for the foreseeable future, so you need to take care of it. If you’re paying a mortgage, see if you can get the cost down: an online mortgage broker like Breezeful can find you some alternative offers, potentially allowing you to pay less each month and subsequently put more money into your savings.
#2 They don’t bet what they can’t afford to lose
Risk only what you can afford to lose: it’s an evergreen piece of advice and it applies to entrepreneurs just as much as it applies to gamblers. Experienced entrepreneurs have seen plenty of efforts go awry, but they’re always able to bounce back and find ways to push on. That doesn’t mean they welcome loss, of course: they cut their losses as early as they can and they take advantage of their successes. But, they know that they can endure it.
So, what can you afford to lose? Well, think about how long it took you to acquire the resources you’re thinking about investing in your business venture — and how long it would take you to replace them. Months? Years? The younger you are, the more you can afford to risk. How much would you need to lose for your will to continue to evaporate? Mindset is extremely important, after all. You need to be ready for what might come.
#3 They view failure as an opportunity
The best entrepreneurs don’t just know how to bounce back from failure: they view it as an opportunity to learn, grow, and try again. That doesn’t mean they welcome it, of course, since they do everything they can to avoid it (if possible, they’d always succeed), but they understand that failure is an inevitable consequence of trying interesting things.
Mediocre ideas aren’t generally too risky. They’ll pay off to some extent, or they’ll perform slightly below expectations: either way, the results won’t be momentous. It’s the big ideas — those with the potential to really pay off — that are the riskiest. To put it simply, if you never fail, then you’re probably not doing the kinds of things that can really succeed.
Risk, then, is simply part of business. Do everything you can to guard against it by honing your plan, cutting your expenses, protecting your assets, and only risking what you can afford to lose, but fundamentally accept that everything might go wrong — and be ready to pick yourself up and try again if that happens.