Bt Rhett Power Contributor
I ask entrepreneurs how they overcome their biggest challenges.
Nearly every choice we make, whether in our personal lives or in business, involves some level of risk. Oftentimes, the risks we’re confronted with are small, and the potential downside they present is limited. Sometimes, however, we must decide whether to take big risks in pursuit of big rewards or play it safe and limit negative consequences.
As a business leader, your appetite for risk is likely larger than that of the average person. The choices you make won’t just impact you and your family, but also your employees and their families as well, which makes your ability to accurately assess risk vital to your success.
Of course, not every risk is worth taking, and it’s perfectly fine not to take risks—even successful companies can be risk-averse. Yet if you want to survive in a highly competitive business environment, especially when the odds are stacked against you, you’ll have to take some chances. With that in mind, here are three risks that are usually worth taking:
1. Moving Forward Without Substantial Investor Support
Blake Mycoskie’s footwear company TOMS is known for pioneering the “buy one, give one” business model, and its success has inspired countless entrepreneurs looking to make money and give back to those in need. But when Mycoskie first began searching for funding, many investors laughed at the model. Nevertheless, he launched his company with the resources he had, and now he’s the one who can look back and laugh. Capital is the lifeline of any business, but it’s not impossible to start a company on a minimal budget. Take the risk.
You’ll just need to start small, which can actually be an advantage in some ways. Keep your focus on only the most essential components of your business. That short list of priorities will look different depending on what your business offers. Consider what’s crucial to keep your business running. Do you need a top-of-the-line website? Or would it make sense to sell your products on a site like Etsy at first? Thinking through these things could help lower the initial cost to launch. Also remember that investor backing isn’t the only way to secure funding: there are plenty of potential funding sources out there. Small business loans, crowdfunding, federal grants, and local funding opportunities could all give you the cash you need to get started. In some cases, you could even barter or trade skills and products to gain access to the resources you need.
2. Hiring on a Tight Budget
When your budget feels tight, you may think it’s best to hold off on hiring additional team members. After all, your current team can pick up the slack for now, right? There is a fine line between expecting your small team to take on a few extra duties and putting the work of three people on one person. The latter will likely lead to burnout and high turnover. Instead, take the risk: hire someone when your budget is tight. Just be smart about how you approach this risk. If you truly cannot afford to pay a full-time salary, consider hiring someone part-time with the expectation that he or she would transition to full-time as your business grows.
Alternatively, do you need to hire someone full-time but can’t offer a competitive salary? In this case, don’t hire a bad fit just to get someone in the door. Instead, get creative when it comes to your competitive edge. Maybe you can offer profit-sharing to your first 50 employees, meaning that team members who take a chance on your growing business now can stand to profit greatly later. Senex Energy, an Australian-based energy company, made speed its competitive edge when it was hiring for its approximately 180-person team in 2013. The company was able to present candidates with job offers and contracts while its massive competitors were still early in their recruiting and hiring processes. Determine what your advantage is and leverage it.
3. Growing Your Business
Growing too fast can permanently cripple your business. Exponential growth puts a strain on company culture, customer service, existing processes, and other aspects of your business that set you up for growth in the first place. That said, the risks associated with growth are worth the opportunity to see more success for your business and your team. And there are ways to mitigate some of the risks involved to make it more manageable. Remember that while many executives conflate infrastructure with “overhead,” having an operational infrastructure that transcends your employees and management team is essential as you grow.
But if expansion to a new market is on your radar, don’t expect business as usual to work. “If you think you can take the business model of one market and easily transfer it to another, you’ll quickly find that you’re mistaken,” warns Matthew Debbage, COO of Creditsafe Group and CEO of Creditsafe USA. “Mistakes can be costly, and changing a business model on the fly is often expensive and time-consuming, especially overseas.” Instead, assign a group of employees to research what changes need to be made to your products and services to see success in a new market. Your business will make wiser decisions if your team has done its homework before you expand.
Even established companies have to take risks if they want to maintain their status as category leaders. If you’re running a startup or launching your own small business, the risks will be amplified. Your decisions will be more impactful—for better or worse. That doesn’t mean you should be afraid of taking risks, but the risks you do take should be calculated ones.
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