10 Ways to Reduce Risk in Your Business by Monika Beck @SuccessHarbor

by Monika Beck | Featured Contributor

Entrepreneurship can be a risky business. But if you thoroughly assess risk and implement strategies to minimize it, you’ll find your chances of success and investment to be greatly improved. Consider the following list of ten key risk drivers for your start-up when trying to minimize risk.

1.       Financial Risk

Financial risk may seem obvious, but it is very important. All your assets may be tied up in the business and you could also have investors expecting a return. Your business plan should have carefully evaluated financial risk. It should detail a prediction of when your business will break even and commence making a profit.

2.       Political and Economic Risk

Political and economic risk occurs when your market is within an underdeveloped nation. This is because it could be dangerous or suffer frequent instability. Additionally, times of recession and heavy taxes or tariffs can indicate high risk. For example, a reserve study consultant may struggle to secure clients in a recession. Although not best practice, HOA’s may let reserve studies lapse during times of financial difficulty.

3.       Operational Risk

Limit the need for specialized equipment or complex infrastructure to minimize risk. Time, cost, maintenance of this equipment or infrastructure can cause investors to view your business as high risk.

4.       Technological Risk

Businesses developing new and disruptive technologies are at high risk because of the uncertainty in manufacturing such a product and the potential for unpredictable performance. New medical technologies are high risk because of the legalities and costs of intense testing processes.

5.       Environmental Risk

Environmental risks constitute any factor that makes your business sensitive to a natural disaster or situation where you can negatively affect the environment, such as instances of pollution and chemical spills. These factors could be specific to your industry, or even your location.

6.       Competitive Risk

Consider the number and clout of your would-be competitors. You will need to identify a strategy to show what is different about your business to obtain a competitive edge. For example, an alarm company in Palm Desert may be able to offer a superior alarm system than the one currently being installed by competitors. Beware of a completely open market. No competitors at all could be an indicator of an unnecessary product or service.

7.       Market and Opportunity Risk

Consider the market you plan to enter. If it is too large or heavily saturated, the risk is higher. An ideal market is one which is well-defined and growing. Risk is minimized with a product or service that is sorely needed rather than seen to be a luxury.

8.       Market Entry Strategy Risk

Risk is also evident in market entry strategies like pricing, marketing, and distributors. For example, high risk would be evident in a business that does not plan to profit for a year because they are giving away free services to establish a customer base. To minimize risk, a San Diego divorce attorney could offer a free will kit to clients who engage their services in a divorce.

9.       High Attrition Rate Risk

Chances of securing investment are heavily affected by entering sectors which have traditionally high failure rates. These tend to be industries with already high levels of competitive saturation. For example, it is difficult to break into retail and telemarketing. In the modern age, social media platforms have become at risk of high attrition rates.

10.   Team Experience and Depth Risk

Depending on your start-up, you generally can’t expect to do all the work yourself. You will likely need to rely on staff. Risk is minimized if your entire team is experienced and knowledgeable within your industry. This is because they are better able to support your product and clients.

For the best chance of your business succeeding, be sure to understand where your risks lie and how to minimize them.

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