Financial Risks
There is hardly any business or startup that won’t involve finance in one way or the other.
As they say, ‘It’s about Money, Honey!’ at the end of the day.
Every entrepreneur needs funds to be able to set up their business.
Now, where do you get the money from?
Usually, the money comes from personal savings or family and friends, loans from banks, or money from investors.
All these entail risks because if the business fails, all the money goes down the drain.
You are royally screwed if it is a bank’s money or money from money lenders who are going to take out your kidney and sell it in the market (it’s not that bad really…I just couldn’t stop myself from cracking the stupid kidney joke 😉).
Anyways, you are in safe hands if you have borrowed money from investors who invested money in WeWork and Theranos because those noble souls just let billion of dollars go down the drain ignoring all the red flags.
How do I know about it?
Well, mate – I just finished reading two masterpiece books ‘The billion-dollar loser’ and ‘The bad blood’. The first one is the story of WeWork’s egomaniac founder and the second one is the story of ‘maniac Elizabeth Holmes, founder of Theranos’.
Anyways, I am going off-topic.
Coming back to financial risk.
On a serious note – it is imperative that before venturing into a business, a proper plan must be made on how to raise funds and then repay it without fudging data or delivering blood testing machines that don’t work…sorry – couldn’t stop me 😉.
Moving to the next risk.
Technology Risk
Any business that wants to keep up with the ever-changing trends needs to take advantage of new technologies available in the market.
And some of these technologies do not come cheap.
In this era of the Fourth Industrial Revolution, you may have heard of some changes referred to as “disruptive” or “paradigm shifts” technologies.
Because there are a lot of competitions, and every company is working daily to outdo the other competition, upgrading to the latest technology becomes inevitable.
And while upgrading might sound like a beautiful idea, it is also a risk because after a lot of money must have been pumped into it, it may or may not yield expected results.
In the real world, how you look at this risk is a scenario where your company invests in a fancy Small Business CRM Software , only to see your employees not use it.
Imagine the time, money, and effort that went into this technology advancement and then to see it go down the drain.
Strategic Risk
Every investor would love to invest in a business with an impressive business plan. A business plan that lays out every single strategy your business has…It’s like you read the art of war and have nailed it all.
But in such a dynamic world that we live in, your strategy can quickly become outdated.
Events like market changes or changes in the business environment might just alter everything.
This means that you may struggle with attaining your KPIs (Key Performance Indicators) and benchmarks.
When this happens, it means you will have to come up with another strategy that might involve money, time, and energy all over again.
We have done strategic blunders in the past and have paid with money, time, and energy for our mistakes.
Reputational Risk
A business is as good as its reputation.
This is more so when the business is just starting, and potential customers and investors are still skeptical about it.
‘That first impression’ is what will ‘make it’ or ‘break it’ for your business.
If the business fails to create a positive reputation, especially at the initial stage, it may find it hard to gain the trust of these principal players.
Don’t forget that we live in a world of social media where news flies at the speed of light.
One negative post made by a dissatisfied customer about a business can negatively affect its reputation before new customers.
Therefore as an entrepreneur; you must be prepared for such events and have a strategy on how to douse the situation.
Market Risk
As an entrepreneur, you may have the best plan set out before you.
And yet, just a slight change in the market can render all your efforts useless.
Newmarket trends and the economy can pose a considerable risk to any business, especially new ones.
It doesn’t matter that your business has been successful in recent years; one major shift can make things go south.
A perfect example is a Covid-19 pandemic that saw a lot of business owners close shop (my heart goes out to every business and startup that failed due to COVID 19).
Loss of income and lack of patronage can drastically affect a business.
Although a proper market analysis that evaluates your product or service potentials can help forestall this, it does not entirely rule out the risk that things might not work out.
Political and Environmental Risk
Even with the proper measures, a political or environmental change can change things overnight for a business owner.
Imagine your business depends on getting the right clearance from the government and you got a partial clearance from one government 0 only to see them lose elections.
In comes the new government with its new fancy ministers.
You – mate, are in serious trouble.
I have seen a company go broke because the government changed and their multi-million dollar bled the company to death.
Environmental changes like hurricanes, tornadoes, and earthquakes can affect a business. In addition, government policies can lead to unfavorable business environments for business owners.
Wars, recessions, and many more issues resulting from government policies can also pose a problem for a business.
Competitive Risk
While every entrepreneur wants to outperform the competition, the absence of no competition might spell doom for such entrepreneurs.
The point is that a lack of competition for a particular product or service might mean that people are not interested in such a business.
On the other hand, the market might be saturated if the business has a lot of competition because of the high demand.
The risk posed here is that your business might struggle to meet up, retain a market share or even beat the competition.
This risk is one that every entrepreneur faces and while some succeed, many don’t.
All the risks listed here are some of the risks entrepreneurs have to take before emerging triumphant.
There may be more. Not scaring you. Entrepreneurship is a field full of risk landmines hidden by glossy startup evaluations.
Anyways, I am not here to bring the dark clouds.
The ones I listed above are crucial.
You must be wondering – How do entrepreneurs tackle these risks?
Let’s find out.
