Entrepreneurship requires calculated risks

In an excerpt from his latest book, TV personality and celebrity chef Levi Roots discusses taking calculated risks in business.

An entrepreneur is usually seen as someone who takes business risks; that is probably the most common perception people have. But business is not about taking a blind gamble. How the risks are assessed and managed before action is taken is the key to wise business decisions. Yes, an entrepreneur takes risks, but they are calculated risks, taken with ‘due diligence’ and confidence. No business person wants to see their hard-earned profit slip through their fingers on a whim, although most enjoy the thrill of winning the deal.

Even so, the risk sometimes doesn’t pay off. You can’t make the big wins unless you are willing to take a risk, and sometimes things go wrong and mistakes are made – expensive ones, too. Unforeseen factors may come into play. That is when the true nature of the entrepreneur is put to the test. Peter Jones has a saying: ‘There are no mistakes, only feedback.’ And he is right. Every mistake includes a lesson to be learned, a chance to review what went wrong, so that you can do things differently in future. If you are afraid to make mistakes, you will never make progress.

Many entrepreneurs work tirelessly, taking few breaks, their minds awash with new and improved ways of running the business or closing the next deal. They are also motivated y the fear factor. It is always there, niggling away at you and asking you questions like, ‘What is the competition up to?’ ‘Are sales up or down on last month?’ ‘What is happening in this or that territory?’ ‘Who is copying the brand?’ ‘Is the team working well?’ ‘Did that last promotion work?’ ‘Where is the next opportunity?’ Your mind will not rest.

The fear factor is a healthy thing; it can actually drive you on. There is never any harm in being tested and encouraged to raise your game and improve performance. If you expect the unexpected, you will be ready for it when it arrives. There tend to be five areas of business risk:

  • External: Threats from your competitors or factors beyond your control, such as new technology or problems in the economy.
  • Financial: Usually problems with cash flow or profitability.
  • Business systems or administration: The systems you have in place for measuring performance, monitoring the money, or product delivery can let you down if they are not running efficiently.
  • Regulatory: There are some rules that should not be broken, such as health and safety guidelines and HMRC and VAT requirements. You need to stay on top of these areas.
  • Personal: You need the personal skills and the heart to lead, drive, and manage your team or you will have trouble getting others to deliver what you need. Most business owners will agree that this is the area that is hardest to get right, and where having a mentor can really make a big difference.

The lessons you can take from risk

The great thing about risks is that they are also opportunities for growth and improvement. The improvement may come from the lessons you learn when you make a mistake, or it can come from a strategic decision to change the way you do things and improve your business.

Some external risks can be weighed up and disregarded, as they are not an immediate threat to your business. For example, new technological developments will usually take time to have an impact. The answer is to make sure that the equipment you buy will not quickly become obsolete. Other kinds of risk you can delegate to external experts, such as finance, health and safety, or legal advisors.

Internal risks such as administrative and operational risks need to be minimised as far as possible. At the very least you need a production schedule and a tracking system to ensure monies are paid and received on time and that you meet your contractual obligations to customers and suppliers.

If you are the risk to your business – perhaps you are headstrong, or lacking in experience or self-discipline – you may need to get out of your comfort zone and get some new skills that will prevent you from ruining all that you have created.

Risk is a motivator as well as a warning sign. In an ideal world, all risk would be eliminated but, without it, entrepreneurs would be less creative, and being in business might be a lot less interesting.

Being an entrepreneur is a high-adrenaline life choice. You will be tuned in to anticipating threats and dangers. The difference between the person who chooses the entrepreneurial path and the person who doesn’t is likely to come down to their relationship with risk. Successful entrepreneurs I know have two things in common: they thrive on challenges, and love competition. They weigh up the options and take action. Under pressure, they show steely determination and face up to the test. Calculated risks and challenges bring out the best in them. They may lose a few deals on the way, but they embrace those failures and dust themselves off, ready for the next venture. They are always thinking big, often very big. In the long run, they are richer and more famous for it.

If you are naturally risk-averse and would rather have a little nap than go into battle with your competitors, you have two main options. Either make sure that you are so far ahead of the pack that you are leading the market, rather than reacting to it, or choose a different way of making a living. I have always found that a certain level of anxiety is a healthy thing. If I am not worried, then something is not right. I welcome the worry factor because it makes me raise my game. I want to keep doing what I do in ways that are better and more innovative.

Levi Roots’ book, You Can Get It If You Really Want: Start your business, transform your life is out now.

Risky entrepreneurs are richer

Entrepreneurs who are likely to take risks have more chance of being wealthy then their more risk-adverse counterparts, new research has revealed.

A new report by Barclays Wealth shows that some 60 per cent of entrepreneurs with $1 million (£500,000) worth of assets claim that their risk taking approach was a key factor in their wealth.

And conversely, among respondents with assets below $1 million only 36 per cent said they had a risk-taking approach.

Commenting on the findings, Kevin Lecocq, chief investment officer at Barclays Wealth, says: ‘This report reinforces the importance of the link between risk and wealth generation.’

He adds: ‘What is interesting is the anomaly between an individual’s willingness to take risks when creating wealth and their reduced appetite for risk when it comes to investing that money.’

The study also revealed that the riskiest entrepreneurs tend to come from South Africa with Britons likely to take a risk-adverse approach to their businesses.

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