“It is very important to do thorough Research on your Target Market, but in the end, you have to go with your instinct / feelings and take those risks you must and be persistent till it pays off.”
Success Topics: Paycheck, $$$ Sacrifice, Market, Demand, Competition, New Tech, Op Costs, Team. Delays, Failure.
You have probably heard plenty of times that being an Entrepreneur is a risky business, and trying to be a success. Investors talk all the time about reducing the risk, yet everyone seems to have their own view of key Risk Drivers for startups, and I’m no exception. I don’t agree, for example, that the first priority is to avoid startups with a high attrition rate – like trendy restaurants & entertainment.
Risk Priority List of key Risk Drivers that every entrepreneur & every investor should evaluate & minimize in starting a business:
1. Abandoning that Steady Paycheck. Before you venture into the world of business ownership, you’ll first have to say goodbye to your current job – and in some cases – your career. Some people have the luxury of a backup plan — an option to resume your career in case things don’t go well in your independent business and you’re not a success.
2. Sacrificing your personal Saving, Investments and/or Retirement. Some entrepreneurs are able to start their Business – relying solely on external funding. That usually a combination of Angel Investors, Government Grants, Loans, and/or Crowd-funding.
3. Opportunity & Market Risk. There is always less risk with a well-defined problem in a large & growing market. All the people in China is a large & growing market, but all the people with Tesla cars is much more well-defined. It’s hard to be a success in a shrinking market, or with a solution that is “nice to have” versus painfully obviously needed.
4. Market Entry Strategy Risk. The selection of inappropriate pricing, marketing, or distribution strategy is a large potential risk. For example, many new Social Media websites proclaim that they will offer a “free” service, and live on Ad revenues (not likely to be a + in the first year without a huge marketing investment).
5. Over-Estimating Demand. What if not that many people want your product or service? You would have quit your steady income and traded it for an empty dream. You may never know what your real income potential is until you actually start. You need to be confident that you haven’t over-estimated, by doing thorough Research. However, No matter how much research you do or how many tests you complete, you’ll never be able to estimate popular interest in your business with perfect accuracy. People are somewhat unpredictable, which could put a giant hole in your otherwise sound plans. Do trial with potential customers, get feed-back & adjust accordingly.
6. Competitive Risk. Think seriously about the number & power of your Competitors. Having none is a red flag (may mean No market), but having more than a couple of large ones may mean this is a “crowded” field. Even in an open space, you need to protect your Intellectual Property – with Patents – to keep potential competitors from stealing from you.
7. New Technology Risk, especially those characterized as “paradigm shifts” or “disruptive” may have long & costly acceptance cycles, or may run into unpredictable performance or manufacturing problems.
8. Financial Risk. Very few businesses can be started without $$$. You as the Founder will be expected to put your own “skin in the game.” Your Business Plan should be realistic about how much $$$ will be required to break-even, and how big the return will be for investors in the first five-year time-frame.
9. High Operation Costs. Some businesses require huge support or administrative infra-structures. For example, Vehicle fuel improvements require service stations & maintenance shops nationwide, before they are viable. Even small operations can have breakdowns of specialized equipment & complex support processes.
10. Spending Too Much in the Startup Phase. What if all your money is burned up before the profits start to roll in? This is where the value of a good Business Plan really comes into play. Your ultimate goal might be to have a nice corner office and all the latest equipment money can buy, but for now, what are the essentials? Lean on it. Strip your business plan down to the bare bones, carefully deciding which items on the list of expenses are absolutely necessary and others optional.
11. Team Experience & Depth Risk. [Not Death Wish. LoL Wiz4.biz] Here I’m talking about both the experience & track record of the Founders in starting a business, as well as their experience & knowledge of the business-operating model. Like most professional Investors, when I get a Business Plan, I flip first to the Founders section to see if it is a “balanced team” – who has been there and done that.
12. Straining Relationships: Keeping up with the demands of owning a small business can be exhausting. So much so that many small business owners don’t have time for much else. Suffering from strained relationships with family & friends can sometimes push entrepreneurs to throw in the towel.
13. Businesses with High Attrition Rate risk. Certain business sectors have historical high failure rates and are routinely avoided by investors & many founders. These include food service, retail, work at home, & telemarketing. On the Internet, I would add new Social Networking sites, and new Match-making sites.
14. Even with Careful Planning, Expect Delays. Entrepreneurs quickly learn that things rarely go completely as planned. It’s smart to set deadlines as to when you’ll need to “break-even” or see a profit. Shoot for those goals by all means, but have a Plan B ready – in case you don’t meet them.
15. Anticipating Failure. The temptation is to ignore these risks and move forward with a false sense of security – mixed with irrational ambition. Such an approach will lead to inevitable failure. Once you enter the world of business, you put yourself in an intense competition that will either get the best out of you or bring you crashing down. Therefore, you do not have the luxury to believe for a second, that you are immune to financial danger. There are going to be plenty of ups & downs for a Startup. The smart thing to do is anticipate the failure before it arrives. This is what gives rise to the concept of Managing Risk.
Comments: Can you think of any other Risks that are significant?
from multi Business sources 3/18 by Peter/CXO Wiz4.biz
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