The 7 common entrepreneurial risks can bring about effects on a company’s bottom line and its reputation among consumers, and risk management plans can help mitigate them. Entrepreneurs face business risks when there is potential uncertainty around strategy, profits, compliance, environment, health and safety.
Risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value, often focusing on negative, undesirable consequences. But risks are things we can always not avoid if we ever dream to break boundaries and get over the world.
Below are the 7 common entrepreneurial risks that you can take while you dream to see your business grow:
Economic Risk
The economy constantly fluctuates and can be impacted by major events at any time, such as a global pandemic. When the economy takes a downturn, many businesses suffer and some even fail. Clearly, the economy is a risk that’s out of your control.
But you can prepare your business for economic headwinds. You can maintain cash reserves or an emergency line of credit that can keep your business alive during the downturn. You should also have a strategic plan in place to manage your company in tough times.
Market Risk
When you start a new venture, part of the preparation is market research, which includes testing the market to find buyers. You’ll also want to know your target demographic and why they’re interested: what need does your product fulfill for this group of people?
If you don’t understand your market, you could end up building a business and a product nobody’s interested in. That’s serious market risk.
Markets are constantly changing, so it’s best to continue your research on an ongoing basis to understand your market and target customers. You may need to adapt your product or marketing to make sure you’re addressing existing needs.
Mental Risk
Entrepreneurship is hard and can take a mental and emotional toll. Working long days can lead to burnout, which you’ll have to overcome to keep the business going. You may have to develop strategies to manage your time, fight through challenges, and stay motivated. Keep in mind that you’ll likely be investing so much time, effort, and passion into your business that failure could be a crushing blow.
Entrepreneurs have to be fearless when it comes to failure, because they know that success is often preceded by failures large and small. You just need to be able to learn from your failures so you can improve and continue to build.
Time Risk
When you start a business, you will most likely eat, breathe, and sleep that business in the early months. Being an entrepreneur will probably take over your life, at least until your business begins to succeed. You’ll also be losing the time that would otherwise have been spent advancing your career. If your business fails, it may be hard to pick up where you left off.
Technology Risk
As technology advances, new products regularly emerge to address new and changing needs. At some point a new product could come out that is cheaper or more efficient and makes your product obsolete. Understanding this risk helps you to be constantly aware of your competition and the direction of your industry.
You may need to do your own research and development to enhance your product or even replace it with something more current. In other words, you need to keep up with technology so that your product offerings can continuously evolve.
Reputational Risk
When a business fails, it’s perceived as the owner’s failure. If your business is sued, you’ll likely be seen as the culprit. This can seriously affect your reputation with consumers and in the business community, limiting future opportunities.
Many entrepreneurs start their business with funding from family and friends. In such cases, if the business fails and those funds are lost, it could hurt your personal relationships. This, unfortunately, is all too common, so it’s wise to make sure that risk is worth taking.
Operational Risk
Operational risk occurs when a business’ day-to-day activities threaten to decrease its profits. Internal systems or external factors can cause operational risks for companies. For instance, a business can experience a threat to its operations if employees make significant mistakes at work.
A risk can also be experienced when the company of an entrepreneur experiences external fraud such as a theft by a third party, the theft poses an operational risk to the company.
