Entrepreneurship is full of risks. That’s part of what defines entrepreneurship! It’s taking a chance on an unknown quantity. Putting yourself out there. Betting on yourself in the face of overwhelming odds.
But how can a young entrepreneur know when to take a risk and when to play it safe? On your very first entrepreneurial journey, risk-taking can seem confusing. Without years of experience in the business world, how do you know when to dive in and when to walk away? Here’s a quick guide to when you should think about taking that risk…and when you should probably hold back.
WHAT’S THE REWARD?
Launching your own business is risky, but the reward can be tremendous. Ask yourself:
- How much money am I willing to lose if this risk doesn’t pay off?
- How much will I gain if it does pay off?
If the potential gains outweigh the potential losses, then you should consider going for it.
DO I NEED TO TAKE A RISK?
Sometimes the choice will be made for you. You will almost certainly need to risk money to get your enterprise up and running. What happens if the website host you use crashes? Now you need to spend time finding a new host and spend money making a new website. What if your supply chain shuts down and you need to figure out how to make your product in some other way (or make a whole different product).
The best thing you can do in this situation is to take the risk that seems the most right to you.
WILL THIS RISK DAMAGE MY COMPANY’S REPUTATION?
Those of you who’ve built up goodwill in your community and among your customers should be careful when taking a public risk. This means thinking carefully about each tweet, Snapchat story, and Instagram post you create. Save your hot takes, controversial opinions, or unpopular views for your personal accounts.
Customer service is also tied to your company’s reputation. Address customer questions. Ship your product quickly and well-packaged. Make shopping on your site as easy and pleasurable as possible. Cheap packaging may save you a few dollars now, but you risk your product being damaged during delivery.
PREDICT OUTCOME
It often helps to make a pros and cons list of potential outcomes from taking a risk. Of course, not every pro or con should be weighed the same. Ruining your company’s reputation is a bigger deal than selling your widget in a new color no one likes.
Assign each pro and con a number from 1 to 3, with 1 being minor and 3 being major. This way you can add up the scores from each column and make an informed decision.
Predicting outcomes to the best of your ability will also help you if things go wrong. Let’s go with that new color for the widget you make. Six months later, you haven’t sold a single widget in that color. Your predictions for the worst-case scenario will help you mitigate that risk so you don’t lose any more money.
ASK AROUND
Take advantage of those who came before you in the world of business. (Of which there are MANY.) They’ve all taken risks. What worked for them and what didn’t? What advice do they have for a young entrepreneur faced with risks?
Teachers, parents, mentors, and other adults in your life have been around (much) longer than you have. Your parents took risks when they had you! Others made major career changes later in life. Or they did something far out of their comfort zone. How did they do it? What helped them make their decision? How did it pay off? How did they overcome failed risks?
LOOK FOR RED FLAGS
Just because your cousin developed a new financial app doesn’t mean you must use it in your business. Educate yourself on the risks you’re taking. Is this app any good? Are you only using it to make your cousin happy?
Are you hiring someone? Check their references. Looking for a charitable cause to partner with? Make sure they have a good reputation. Need suppliers for the raw materials you use to create your product? Look at that supplier’s online reviews and make sure they are legit. Whenever you’re going to take a risk on an unknown quantity, a little research goes a long way.
MAKE IT MAKE SENSE
Selling Christmas ornaments in February probably isn’t a good idea. Neither is offering babysitting services for senior citizens who can’t possibly have young children.
The risk you take should make sense. Christmas ornaments should be sold in the months leading up to the holiday. Babysitting services should be advertised to parents of young children. Don’t waste your time and money on something that’s so bizarre it can’t possibly work.
HAVE A PLAN B, C, AND D
The worst thing that can happen when you take a risk is that it fails. Because of this, you can make life easier for yourself by planning ahead. This includes:
- Having an emergency stash of cash to stay afloat
- Having other supply options
- Backing up all your data
- Prioritizing the most important parts of your business
- Establishing policies for risk failure
PAY ATTENTION
Simply paying attention to the world around you can help you decide when to take a risk. When the major fast-food chains saw the rise in popularity of non-meat burgers, they took the risk of selling their own meatless options. That risk paid off for them, not just among vegetarians but among existing carnivorous customers as well.
Similarly, if you run a babysitting service and the kids you sit for are all growing up and getting too old for sitters, it’s time to take a risk. Will you advertise to new customers? Offer another service to existing customers, such as tutoring or housekeeping?
Ultimately, taking risks is both a science and an art form. The more you do it, the more you’ll learn how to listen to your instincts. You’ll develop a sixth sense for good risk vs bad risk, how to bounce back from failed risks, and how to use good judgment. As with most aspects of being a young entrepreneur, taking risks is a life skill you’ll have forever.
Are you a Florida-based young entrepreneur looking for a college scholarship? Click here to learn more about how the Kantner Foundation can help you!