Blog: There’s Risk Taking and Risk Management

Risk-taking – Dictionary Definition: “taking risk is facing some kind of peril, jeopardy, hazard, or exposure to chance of injury or loss.”

In my experience an entrepreneur starting a new company faces risk at the highest level by entering a new venture and the unknown, but for growth, it is an absolute necessity.

For Example, What’s at Risk and could happen?

  • FAILURE
  • Loss of time wasted – could be years
  • Loss of money, personal and family, friends, and investors
  • Negative impact on lifestyle
  • Increased stress
  • Negative impact on family ongoing
  • Constant frustration

Why then take the risk?

The rewards of taking a risk may significantly outweigh the time and energy and cash invested for gaining both the psychic and financial rewards…nothing ventured, nothing gained and staying the same, can lose the game.

How to control risk for a startup at the very beginning

  • Start with the strategic plan to make a success for the idea, concept, service/product
  • Define a business model – there is a template called a canvas and can be found on the Internet
  • Do not quit present job until reaching key milestones
  • Limit cash borrowed particularly from friends and relatives
  • Bill a team with passion and the potential for individual growth
  • Add advisors at the beginning that have been there, done that
  • Present ideas and concepts to as many people as possible for feedback
  • Prove validity of the service/product with customers prior to raising any money and make sure you ask if they will pay for it
  • Continually report on the business model and treat it like a diary noting changes as you go along
  • Stay focused on a well-thought-out plan but be flexible when changes are needed

In General

  • Try to understand the present situation thoroughly
  • Formalize and document the risk to be taken
  • Carryout due diligence on the opportunity
  • Analyze the upside potential if the risk is ever taken
  • Analyze the downside loss of the risk’s failure
  • Have a Plan B an alternate (“what if” results deviate too much from the plan)

Risk-taking – Axioms

  • If it can’t help, but might hurt… Avoid it!
  • If it can’t hurt, but might help… Don’t do it, but watch it!
  • If it can’t hurt, but will help… Go for it!

Risk-taking Myths to Avoid

  • Going for a higher target will ensure you make the real goal
  • Call enough people to find one to give you an out for taking a risk
  • Not risking is a safe strategy – it could be a higher risk by avoiding it
  • Sharing risk reduces danger
  • Risking is gambling – not so, because the risk taker can control the odds

Managing the Risk-Analyze and Act if necessary

  • Plan Periodic Reports & Reviews
  • Compare Risk Spending Vs Risk Budget
  • Go to Plan B if Risk Plan is not on Target
  • Define Criteria for Continuing Risk if Missing Plan
  • Determine Criteria for Terminating Risk
  • Do Perpetual Monitoring

Important: Planning a project without planning cash flow is foolish

Planning a project without considering contingencies is foolish

Having only enough cash assuming a project is completed in the time allotted is foolish. History has proven this to be wrong

Controlled Risk Mistakes Are Okay
if:

  • We learn from our mistakes
  • We have quick recognition and acceptance of mistakes
  • We do not spend energy on defending mistakes
  • We spend energy on mistake correction, not fault finding
  • We think of mistake correction as a path modification
  • We move on

Consider The Proper Mindset Facing Risks

  • Accept the uncertainty
  • Know the potential gain (upside potential)
  • Know the potential loss (downside loss)
  • Determine significance-is the risk meaningful
  • Make sure there is sufficient cash to succeed because one of the top reasons for failure is insufficient cash
  • Most often, the bigger the risk the bigger the potential rewards.
  • There will be some setbacks along the way that should not deter going forward