6 Ways To Avoid Risk As An Entrepreneur

Many people think that becoming an entrepreneur is equivalent to embracing risk. True, any entrepreneurial venture will necessitate taking on some risk, but successful entrepreneurship is about doing so strategically to avoid any unnecessary risk.

Entrepreneurship is not a process of taking any risk, but of minimizing risks on certain tactical fronts so that you can afford to take risk in other areas. In fact, it is this groundwork of non-risk that allows the smart entrepreneur to engage in tactical risk. We can call this concept your risk margin: by locking in core aspects of your enterprise as low risk, you create a risk margin, or the risky part of your business that will induce risk-return, innovation, and growth.

Here are five simple ways to avoid unnecessary risk and optimize your risk margin’s return.

1. Build a minimum viable product (MVP) to test your business’s key hypotheses. It is important to not sink too much time or money in an idea that won’t pan out. To avoid this, put a minimal version of your product in the market place and see what happens. A minimum viable product acts as a “canary in the coal mine”, alerting you to danger before it is too late to abandon the venture. Successful MVPs also give you the opportunity to collect critical information from customers before you’ve invested all of your time and money into your project.

2. Don’t quit your job before starting your company. It can be exhausting, but keeping your day job is the best way to de-risk your venture. If you are starting a business in the same sector where you currently work, be careful to make sure you aren’t subject to non-compete clauses. Also, don’t work on your new business during working hours. If your employer finds out, they may be able to make a claim on your new business.

4. Build a business with early cash flow. Focus on making sales early and use the cash to grow your business. This point is linked to our first insight—have a minimum viable product. While you should structure your company from the first day to be expandable, scalable, and amenable to adding more products and services, the initial stage of your company should be about bridging the space between your product and its demand in the most efficient way possible. This will test your product and build your profit margin, allowing you to reinvest and expand at later stages.

5. Start a business with low fixed costs. In one sense, this is the simple principle of “Why pay now when you can pay later?” But this principle makes sense: early in your business, your profits will not be as high as after you have established your business architecture and the customer base. By deferring payment until a later, more lucrative stage of your company, you can avoid imploding your business before its even begun. By making all of your costs variable – and payable after services have been rendered – you can avoid paying up front.

6. Get at least one month of free operating costs. If you are opening a retail location, find a landlord who will give you at least one month’s free rent. If your business operates online, you’re probably using web services to facilitate your transactions. While it may be easier to partner with megalithic companies like PayPal, using a smaller start-up that offers the same service introduces the possibility of negotiating for a free month of their utility.