Entrepreneurship: Is It Worth The Risk?

Irrespective of the stage of business that you are at (your business is still in the idea stage, you are a new entrepreneur or you’ve been running your business for some years), taking risks is a constant and compulsory part of the entrepreneurial journey. 

Often times, the idea of being your own boss and taking charge of your own business is presented as a glamorous one, without addressing the challenges that the entrepreneur might face or even possible failure.

According to an article posted by Fundera in November 2018, 20% of small businesses fail in their first year, 30% fail in their second year, 50% fail after five years and 70% fail in their tenth year in business.

To buttress these numbers, the Small Business Administration (SBA) Office of Advocacy’s 2018 Frequently Asked Questions revealed that roughly 80% of small businesses survive the first year.

These statistics are not meant to scare you, but to keep you aware and prepared for the risks and challenges that come with choosing the life of an entrepreneur.

TYPES OF RISKS

Investopedia defines Business Risk as the possibility a company will have lower than anticipated profits or experience a loss rather than taking a profit. For all the stages of business that you might find yourself in, there are some risks that are impossible to avoid. They are:

1.   The Steady Income Stream

In most cases, before diving into the stormy sea of being a business owner, you have to bid your current job farewell. For some people, this decision extends to abandoning career paths altogether.

Although, certain individuals are fortunate enough to have a backup plan; this plan rarely comes in the form of an alternate job. This is because as a green entrepreneur, your new business will be time-consuming and will require all your time and attention to ensure its growth. So, choose the time to cut the parachute from a paid job to a full-time commitment to building your enterprise.

2.   Personal Funds & Capital

It is a well-known fact that one of the major challenges that affect new business owners is the source of capital. For this reason, entrepreneurs are constantly seeking funds through loans, angel investors, government grants and other means to keep their business running.

Even with the existence of these external sources, very few entrepreneurs are able to completely avoid digging into their own personal reserves to fund their business. This is not to say that you will end up emptying all your personal savings, but, you should be prepared to make these sacrifices. I recall the number of times I considered mortgaging our house to fund the development of a script for my feature film, Babymother and to keep my production company afloat. Instead, I chose to close my production office and take a part-time job as a producer on another film while continuing to find external funding for the project. A year later, I reopened the office and went into production. My advice is don’t risk your personal home for your business.

3.   Market Trends & Disruptions

As an entrepreneur, you must have done in-depth research about your chosen sector/field before venturing into your business. This helps you identify your competition and to understand the market trends so as to create a viable business financial model.

However, irrespective of the amount of homework you do, it's still impossible to predict the market one hundred per cent. This is because change is a constant thing and there is every likelihood that a business idea was viable yesterday will become obsolete tomorrow.

These “disruptions” will happen from time to time and they are risks that an entrepreneur needs to come to terms with. They could occur in the form of a new player in the business market or a new technology.

For example, the birth of companies like Uber and Taxify have caused a major disruption in the taxi business. Also, streaming services like Netflix, HBO, Hulu and others in that sector have greatly changed the home video entertainment industry sending companies like Blockbuster (Source: Business Insider) into bankruptcy. Netflix is further disrupting the production finance and theatrical distribution and cinema exhibition of films today as they shift the audiences to streaming.

Although these factors may seem totally beyond the control of entrepreneurs, it is important to stay vigilant and flexible. Do not be afraid to pivot, cut your losses and jump ship if the situation is unsalvageable. Embrace failure and fail fast.

4.   The Trust Bargain

It might be constantly overlooked but building trust with the employees that you hire is a monumental entrepreneurial risk.

The chances are that when you begin your business, you will not have a full team of employees ready at your beck and call. What you will most likely have to work with is a small and efficient group of people who will be working tirelessly to bring your idea to fruition.

As such you're going to have to put a colossal amount of faith in these individuals to ensure that your business moves forward. This hurdle is rarely spoken about because it touches on the soft skills of work (e.g. building interpersonal relationships) and not technical skills.

However, studies have shown that in the world today, technical skills can be learnt. Softer skills need to be nurtured and grown. As such, the ability to depend on your employees, trust them and groom them into a cohesive unit is a risk that all entrepreneur need to face. In emerging markets like the African continent, finding and retaining talent is a huge challenge which needs to be factored in your business plan, because you will lose your best talent to the competition.

5.   Timing & Deadlines

As a startup, be prepared to be thrown off the deep end into tight time schedules and deadlines. This is because you are new in the market and your financial state will be very brittle.

Investors will be breathing down your neck because they want to start seeing visible process while customers might be making heavy demands which you need to meet to earn their trust.

This can turn into a real rollercoaster and it is a risk that needs to be properly managed. If it isn’t, it could lead to missed deadlines, delivering sub-standard products or even sacrificing health for business which is not advisable.

To avoid this, all-round preparation is key. Mental preparations involve creating contingency plans and coming up with structures that work. Physical preparations which involve a healthy diet, adequate rest, and exercise. Make daily exercise as routine as breathing, this is what kept me sane through my entrepreneurial journey as a mother, wife and business owner working in the world’s most competitive sector – the media and entertainment industry.

These factors might not be emphasised often but remember, a dead man or woman cannot be a business owner.

RISK MANAGEMENT

New entrepreneurs usually have so much on their minds on a regular basis. As a result, there is the tendency to get totally absorbed in the day to day running of your business that you forget a very key element: Risk Management.

WhatIs.com defines risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters.

In simpler terms, it is a means of finding out ways your company can be affected negatively and creating ways to reduce the possibility of these events occurring. It is important to note that there is no such thing as a perfect risk management plan. However, having no risk management plan will leave your business vulnerable and exposed to potential losses.

Therefore, it is important for every business to develop a risk management plan no matter the size of the business. Knowledge, as they say, is power and there is no excuse for ignorance.

As a new entrepreneur, you might not have the finances to hire a risk management professional but there is an abundance of resources online that can teach you how to create a risk management plan for your own business.

Conclusively, it is important to know that risks should not make you shy away from embracing the life of an entrepreneur. Rather, you see them as obstacles to surmount to get your business on a higher pedestal.