Understanding and managing risk in entrepreneurship is an essential part of the journey. Risk comes in many forms and can be a source of both fear and excitement. It will always be there, but how we deal with its presence can determine the success of a venture and, at the very least, our experience of starting and running a new venture. Over my many years of experience starting and running multiple businesses, from global corporations to tech startups, I’ve learned that the most significant risk is often the unknown; those factors you can’t predict and aren’t prepared for.
In this article, I’d like to share some of the insights I’ve gathered over the years on how to try and anticipate and manage risk in the world of entrepreneurship. Let’s go.
Our biggest risk: The unknown
One of the main challenges in any entrepreneurial venture is dealing with the unknown. It can manifest in various ways and can end up having a devastating effect on a business, as we saw during the coronavirus pandemic. Sectors that seemed untouchable, such as tourism and gastronomy, were heavily affected by the lockdowns and restrictions on movement. Many countries and governments were able to help business owners with emergency aid packages, but those that couldn’t cover the cost of long-term closure inevitably suffered.
As was the case in the recent pandemic, another common issue businesses face is not having sufficient capital to cover potential risks that do materialize, meaning they are unable to reach their end goal. In my case, for example, none of the businesses I have founded adhered to their original time schedules. These delays inevitably led to increased costs, which, for me, highlighted the importance of having enough resources to weather these kinds of uncertainties — the unknown. For entrepreneurs who have been able to get a business off the ground, these kinds of lessons are invaluable for future projects and should always be taken into consideration when planning a new venture.
Mental resilience and risk perception
As entrepreneurs, it is crucial we are able to mentally prepare for uncertainty, potential losses and foreseen challenges. It’s important to remain proactive and adaptive when things go wrong. The ability to stay optimistic and psychologically resilient is a defining trait of successful entrepreneurs. Most entrepreneurs are incredibly optimistic. We recognize the risks but are adept at managing their reactions and finding solutions. Even though we see the risk involved, we are able to deal with it psychologically and see past potential challenges.
That being said, whilst an essential trait among entrepreneurs, positive thinking is not enough. It’s vital to realistically assess the end goal, including the time and financial investment required, and have tangible resources in place to cover potential expenditure or loss. A significant challenge in risk management is also knowing when to persevere and when to pivot. My biggest struggle has often been not stopping a venture when I can see it isn’t working and moving on. Sometimes, the wisest decision, for the sake of our own health and that of the business, is admitting defeat.
Flexibility and experimentation
Starting a new business requires an openness to experimentation and adaptation. Entrepreneurs may have a clear vision, but the path to achieving it is rarely straightforward. It involves trying new approaches, learning from what works and what doesn’t, and being willing to change course if necessary. Listening to others’ experiences can often teach us a lot, whether or not the project in question is related to our own. Many struggles faced by entrepreneurs are common to all sectors and business models, so network, open up to other business owners, and don’t be afraid to ask for advice. By drawing on these shared experiences, we can find solutions and avoid common pitfalls, ultimately increasing our chances of success. Being adaptable also means staying receptive to new technologies and market trends, ensuring our business remains relevant and competitive. Never underestimate the power of learning and remain open to new ideas.
Risk is an inherent part of entrepreneurship, and managing it successfully requires a combination of preparation, flexibility, and mental fortitude. Unfortunately, the number one reason many companies fail is because they run out of cash. But by acknowledging and planning for the unknown, staying realistic about goals, and being ready to adapt, entrepreneurs can learn to manage the risks they face and increase their chances of success.
For more of my insights and reflections on entrepreneurship, take a look at the other articles on my blog, visit my YouTube channel and follow @williamerbey on social media.
