5 startup tips for taking informed risks

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Are you an informed risk taker? Photo via Lori

Entrepreneurs by definition are risk-takers.

They break new ground and are unfailingly willing to step off the well-trodden path of conventional practice.

For entrepreneurs, “risk” takes many forms: career (choosing a start-up over corporate stability); reputational (attaching name and reputation to an initiative that has real potential for failure); commercial (entering markets that may be the domain of larger and better capitalized enterprises); financial (boot-strapping a business in unproven markets); legal (intellectual property can be vulnerable without deep pockets); economic (many worthwhile businesses are defeated by macro-economic conditions) and timing (yesterday or tomorrow is often better than today).

And these are only the known risks.

Successful entrepreneurs are neither oblivious nor indifferent to risk; they understand the difference between assuming risk and engaging in risky behavior. The former can lead to big rewards, and the latter can result in nasty surprises. What follows are five tips for taking informed risks and limiting unwanted surprises.

1.  Keep your eye on the prize.

A laser focus on your business goals will help you determine which risks are worth accepting. In a world where capital and time are precious, it is imperative that every entrepreneur, whether running a coffee shop or developing a state-of-the-art algorithm, operates strategically with clearly measurable milestones. No matter how shiny, don’t divert resources to opportunities that are tangential to your core goals. Be very wary of the D-words: diversion, diffusion and distraction as they often lead to disaster.

2.  Do your homework

A systematic approach to evaluating risk is imperative to assuming informed risk. Do your homework, set benchmarks and assess your relative progress frequently. Run the numbers, weigh the pros and cons and understand possible outcomes; and critically assess every initiative to understand whether it aligns with your established business objectives. Gaining the aforementioned knowledge allows you to take a calculated risk. And, once you embark on a course of action, use data to help steer your course. Ongoing analysis of data will provide business-saving signals and help you see what’s not working and where to make adjustments.

3.  Set your parameters

The pursuit of hockey-stick revenue growth, while staying within acceptable levels of risk, is one of the most challenging balancing acts for an entrepreneur. Setting and sticking to your parameters for acceptable levels of risk is critically important. Consider how far you’ll go – how much you will invest, how many directions you are willing to take, how far off course you are willing to go.

Determine the risk-adjusted value of the decisions you are going to make.  Should you invest in production capacity in anticipation of potential but unconfirmed orders? Or should you wait? Should you expand your marketing budget to enter a new market? Or should you simply double-down in your current markets? Should you invest in international patent protection or is domestic enough?  Many of these and the thousands of other questions you address in a single year must be answered, and then re-asked and re-answered again and again.

4.  Share your risk profile.

There is little value in defining your risk metrics if they are not understood and adopted by your employees. State your goals, explain your risk tolerance, reward adherence and eliminate aberration.  Here are a few tips for avoiding excessive personnel risk: carefully hire, develop and retain talented people whose experience will add specific value to your team. Each manager and team member should have goals and measurable benchmarks. This isn’t micro-managing but, rather, giving your greatest asset, the tools to be successful.

Your business model will evolve, and you must ensure that your employees are capable of evolving as well. Put your human assets in an environment where they can succeed and, as your business changes, help them change.

5.  Embrace change.

The Greek philosopher Heraclitus said “change is the only constant” and it speaks well to the entrepreneurial spirit. It’s only by embracing change that your business will succeed. To be clear, however, change alone does not ensure survival, let alone success. You must push yourself and your business to uncertain limits and assume risks that you cannot necessarily see. Failure is always a possibility, but you know that.

Don’t stick with yesterday’s plan just because it’s the plan: watch performance and measure it against acceptable risk levels so that you can move evolve for the betterment of the business. In business, one of the biggest risks for today’s entrepreneurs is not changing.

Consumers, technologies, and industries evolve. The challenge is to stay creative while delivering results, which means that smart new ideas are priceless. There’s always an element of risk in putting new ideas out there, but with the right people, sound processes and a disciplined approach, the rewards are likely to outnumber the nasty surprises.

Andrew Martin runs the North American division of digital marketing agency Metia. His technology experience includes infrastructure and development for end-user and consultancy companies around the globe. 

  • Taylor

    Love this article! Luck plays into the sucess of an entrepreneur but creating realistic goals and a plan on how you will acheive each one is also vital to the success of your business idea.