Achieving success as an entrepreneur isn’t about luck (well, not entirely). It’s about being driven, being motivated, working hard and, crucially, it’s about taking risks.
But taking a risk is, well, risky business. In fact, though, risks are part of our day-to-day lives – we make 35,000 decisions every day, from the small to the significant. And risk is practically synonymous with entrepreneurship – if you are to succeed, you will need to take risks.
But that doesn’t mean you have to take them blindly. We’ve developed a question-based checklist to help you work out whether a risk is worth taking.
Here are five questions you should definitely check off.
How can I tell if this risk will work out?
In business, there are varying types of risk.* Broadly speaking, we can separate them into two main ones: known risks and unknown risks.
Before taking a risk, the first thing you should check off your list is what kind of risk it represents. That way, you can work out if you should take it.
A known risk is one you have previous experience in taking. That means you’ve got some evidence that can help you work out if taking the same risk, or a similar risk, will work out the way it did before. The evidence could be anecdotal – you saw it worked – or backed by data – statistics that show an increase in customers on the back of a new ad campaign, for example.
Unknown risks are a different ball game. Taking an unknown risk is a real leap into the dark. You have no evidence at all that can help you weigh it up, and you have no real idea of whether it will succeed or not. That isn’t to say you shouldn’t take an unknown risk – just make sure you have plans in place to mitigate should things go wrong.
If I take the risk, what’s the worst that could happen?
This is crucial. To safeguard a risk, work out what the worst possible outcome could be. Depending on the risk, it could be pretty small – a new product not taking off as you might thought, say, making a short-term dent in your profits. Or it could be big – large-scale investment in a new company, for example, that totally fails, leading to job cuts.
Work out the absolute worst-case scenario and ask if you’d have the resources to deal with the fallout.
Will the risk benefit me, or my company?
As an entrepreneur, you will be used to doing things on your own, on your own steam and off your own back. But if you’re building a business, it’s time to start thinking about the bigger picture.
As you grow, taking risks will increasingly be business-centric, not entrepreneur-centric. You will need to consider a much wider pool of risk indicators than you have done before.
Increasingly, risks will need to be taken with the wider interests of the company – not just yourself – on the line. If you have employees, these should be your first thought. How will this risk affect them?
Is my business on my side when it comes to taking this risk?
Does your business have stakeholders? Angel investors? Mentors? It’s highly likely that, in some form or another, your company will have people who will want a say on taking business risk. In some cases, they might even have it written into contracts.
It is crucial that the opinions of investors and management is taken into account when weighing up important business decisions. You need them on your side and, of course, it’s always a good idea to seek contrary views and second opinions.
Have I got a Plan B?
Ah. While it’s easy to rush headlong into a business risk without thinking about it, you do so at your peril. It could all go wrong, especially if you haven’t considered the questions outlined above.
Having a Plan B might seem to run against the idea of taking a risk – but it’s very important that you have one. Should things take a turn for the worse, you’ll be glad you’ve got a back-up plan.
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