What is risk taking in entrepreneurship?

When it comes to taking risks in business, this doesn’t mean going into things blindly and then expecting results. Risk-taking in entrepreneurship involves careful planning, effort and perseverance. This article will look at why risk-taking is important to entrepreneurs and small businesses:

• What are business risks?
• Why is risk taking important?
• Types of business risks
• How to make calculated risks

Risk in business is used to describe decisions that have elements of uncertainty attached. 

Risks are a fundamental part of being an entrepreneur. You may have risked some of your personal money when starting the business or given up a full-time job to pursue your venture. These are calculated risks you’ve taken to get started and you need to be comfortable making potentially risky decisions, both big and small, regularly as your business grows.

Risk taking is a fundamental part of running a business. No one wants to look back and wonder ‘what if?’. Often business owners attribute their success to following their instincts in a risky decision, after weighing up the potential benefits. When looking back, you may regret not trying something, but you may not regret having given it a go. And if that advice on being confident enough to take risks is what led Jeff Bezos to create Amazon, then it’s good enough for us.

However, that advice doesn’t mean that every risk you take will pay off, no matter how well researched and planned it is. But every risk you take is a chance to learn. Entrepreneurs must look on the bright side, even if a risk doesn’t work out in their favour, and look deeper to see what could have been done better or differently. Learning from risks can also help you become a more strategic thinker, so use every risk to develop and move forward as a business owner.

Entrepreneurs who are willing to take risks have an advantage over their competitors because they are ready to move with ever-changing customer demands. Trying a product or service before anyone else identifies the opportunity is risky, but if you keep your finger on the pulse of what your target audience needs and wants, doing something ‘new’ first could pay off. 

Opportunities come with risk, and risks create innovation, and new ways of doing things that no one has tried before. A lot of bigger businesses shy away from risk, and that means less competition for the brave who are willing to take that leap to try new things in business.

In every decision, there will be risk factors. Here are some of the types of risk associated with being a business owner:

Many risks in business will involve a level of worry around cash flow. Healthy cash flow is important to running your business while paying your obligations (contracts, bills, wages or paying service providers) and taking risks can jeopardise that if not considered carefully. 

When doing your financial planning, it’s important to keep some money aside to act as a buffer for taking risks. This means you can adapt as the decision plays out and have spare cash to continue your usual operations. 

Market risks refer to changes in the sector and your ability to change and adapt. The pandemic is a good example of how market risk played out for many businesses, like restaurants and cafes. Astute business owners are able to make decisions regarding the state of the industry, and many food businesses shifted to takeaway service when they didn’t offer this before, to fit the current state of the market.

Credibility refers to the reputation of your company. Will the risks associated with launching a new product affect your reputation or your ability to keep your service running smoothly? Or does it go against what you are known for, amongst your audience? 

Technology risks are when your security or systems are compromised. For example, you might decide to host your eCommerce website on a new platform, which leaves your website vulnerable to being hacked and therefore your site will be unable to generate sales. Find out more on cybersecurity here.

In order to take risks, you must be able to weigh up the available avenues to arrive at an informed decision. Don’t shy away from risk or move forward without considering your options, but work to become a calculated risk-taker who examines the landscape before diving in.

You can find ways to reduce risk by developing plans for every risky decision you need to make. Here are the steps you should follow to make calculated risks:

• Identify risk. Examine the options and outcomes for all scenarios, and note which things you do and don’t have control over. This will help you when weighing up the decision.
• Create steps. Plot each risk by creating a step-by-step guide that will help you move through the activity and navigate risks as your business decision pans out. This will also help you see any financial, technology, market or credibility risks before they happen as you plan your steps.
• Document the decision. Write a short report on what the decision was and the risks involved. If you document your decision-making process, you will be able to learn and grow as a business owner from it, whether it was successful or not.

You don’t have to take risks when it comes to your bookkeeping. Countingup can help you save time on financial admin every day. The business current account and accounting app provides instant invoicing and automated bookkeeping features. It is saving business owners hours of time-consuming admin, and helping thousands keep on top of their finances.