By nature, entrepreneurs are to a degree risk takers, as it is likely that they have taken a big risk by leaving a corporate environment and a steady salary to start their own business. The reality however is that many entrepreneurs are more cautious and risk-averse than what is perceived to be.
Christo Botes, spokesperson for the Sanlam / Business Partners Entrepreneur of the Year competition, says that the fear of failure is a common occurrence in any entrepreneur’s journey, and that this fear can discourage business owners from taking the essential, calculated risks needed to further develop and expand their business.
“Although the ability to take risk is an essential trait in an entrepreneur, not many entrepreneurs possess the ability to do so and instead view risk negatively, associating it with possible danger and loss. However, in the process of doing so, they can also sabotage their own success by falling into a comfort zone, ultimately prioritising their fear of failure above the search for success. This fear can inhibit a business from remaining innovative, which is necessary in an ever changing economy faced with differentiating consumer demands.”
Botes says that calculated risk is an integral part of a business, and entrepreneurs should look at it as an opportunity and challenge to overcome the unknown and in the process, grow their business. “Having the ability to spot an opportunity, investigate the options and then take the calculated risk is what sets entrepreneurs apart from others that may take reckless risks.”
He adds that entrepreneurs who are calculated risk takers understand that there is a clear distinction between risk and danger. “Entrepreneurs who are able to take calculated risks and manage them, are confidently able to find a balance between maintaining a need for security, while making the necessary decisions or investments needed for the future growth and success of their business. This equilibrium is a crucial trait that a business owner should posses.”
Botes offers the following practical tips on how entrepreneurs can manage their risks:
Know your customer base
Interact regularly with your customers, employees and make a concerted effort to stay up to date with new technologies that may benefit, or hinder, your business. If you are aware of what your market requirements are ahead of time, you can minimise your chances of loss. For example, this type of research will enable you to avoid costly mistakes, such as entering a new product that wouldn’t appeal to your customer base.
Embrace risk by establishing short-term goals
Get comfortable with the idea of risk, as it is part of your daily business operations and will play a major role in determining your success as an entrepreneur. Start by setting achievable goals that you will be able to accomplish in a short period of time. Achieving these short-term goals will give you the courage and experience to avoid decisions which carry greater risk for your business later on, without being discouraged by the fear of potential losses.
Know your market environment
Information and research are the key ingredients to increasing your risk tolerance. The best way to manage your risk is to create a deep understanding of the market the business is operating in. Being familiar with the opportunities and risks in your marketplace will give you an advantage over your competitors, and enable you to distinguish more easily between risk and danger.
Seek advice from fellow entrepreneurs
Becoming an entrepreneur is risky no matter how you look at it. However, by seeking mentorship from seasoned entrepreneurs you will empower yourself to unleash your own, and your business’ full potential. In other words, the more you know, the less you fear. If you’re having difficulty accomplishing your goals, it could be beneficial to brainstorm ways to manage your risks by seeking mentors that have the information or skill set that you require for the issue at hand.
“The secret to entrepreneurial success is to aim for the maximum reward for the lowest risk possible, but this is not always possible in a competitive business environment. If business decisions were solely based on the amount of risks associated, entrepreneurs would probably never commit themselves to a business decision. To be successful, an entrepreneur must therefore have the ability to calculate and consider the risk and then commit themselves to their decision to ensure results,” concludes Botes.