Entrepreneurs have much in common with professional stuntmen in that they both choose to take risks for a living. Doing so is both respectable and intimidating. On one hand, it takes a unique person to put themselves or finances on the line in search of success and personal fulfillment. On the other, they are fully aware of the dire consequences on the line should their ideas fall short. Some people are simply not cut out to risk as much as entrepreneurs do to get their company off the ground. However, that is not to say these entrepreneurs are out here throwing caution to the financial wind with no consideration for negative possibilities. They are very familiar with the words of the CEO of Lehman Brothers, Richard S. Fuld Jr., “The key to risk management is never putting yourself in a position where you cannot live to fight another day.”
The reality of being an entrepreneur is that not every endeavor will yield fruit. Sometimes, financial loss takes place despite every attempt to prevent it. If this happens too many times, the end of the startup is nigh. There are many ways to reduce risk of running a startup and to help you avoid this outcome, we connected with a few business experts to understand how to do so.
Planning
Shaun Price is the Head of Customer Acquisition at MitoQ, a brand offering a cellular dietary supplement. He suggests being thoughtful in designing and strategizing the startup.
“The biggest battles are won in the planning stages. It is as simple as that. A poor plan results in an unfavorable outcome which is reason enough to steer clear of it. But that’s going to take some work on your end. Your startup plan should contain all relevant information related decisions involving structure, goals, costs, finances, and more. It should act like your strategy guide for the entrepreneur battle you’re going to face every day. The only difference is that you’re responsible for writing it. If that sounds like a lot of pressure, then being an entrepreneur may not be cut out for you.”
Savings
Overnight success is no more than a myth. 7 Wonders is a business providing full-service branded video strategy, production, and delivery. Their Co-Founder & Executive Producer, Michael Ayjian, advises others to be financially prepared to dedicate vast amounts of time.
“Stepping out on your own as an entrepreneur can be made far less scary than people make it out to be. It seems a lot of people get caught up in the what ifs should a startup fail. That’s fair because more fail than succeed. But, if you’ve taken the steps necessary to negate as much of those negative possibilities as you can, then you’re going to be fine. Before you walk away from your job, make sure your savings account is adequately stocked to provide you with your personal, professional, and emergency needs should they arise. In the grand scheme of things, losing money chasing an idea you believe in is worth it. Just don’t mortgage everything on it.”
Nothing personal
Fighting For You specializes in personal injury law. Their CMO, Max Schwartzapfel, considers it wise to stay away from any financial backing that involves a personal identity.
“There’s this tendency to believe that entrepreneurs must go their own way completely independently, for whatever reason. This kind of thinking can lead to some decisions you’ll probably regret later. From personal loans to credit cards, entrepreneurs have always found creative ways to source their startups. Creativity is a wonderful asset for every entrepreneur, just not in this capacity. There are so many other options available to find the money you need from investors to business loans, it’s foolish to put your personal name on the line as one misstep could derail more than you anticipate.”
Eliminate excessive cost
Anish Patel is the Founder of Tinto Amorio, a brand offering craft natural wines and spritzes. He cautions others to analyze how their money is being spent currently to cut anything not needed.
“Big dreams are what define entrepreneurs and allow them to create uniqueness unseen, yet demanded, by the public. It’s a fantastic quality. However, if this aspect of a person is not under control it could cause problems. Entrepreneurial big dreams generally involve an established base of customers, physical space, branding, and even more. These are great things to strive for when set as goals but if you dip your money in these things too early, it could leave you in a precarious situation. Essentially, you should be looking for ways to keep your money away from excessive costs that won’t help you function in your current state.”
Focus of efficiency
Few things cut expenses like reducing the time it takes to accomplish a task. Embroker is a business providing digitally-native insurance. Their Founder & CEO, Matt Miller, proposes placing an emphasis on this.
“If you can find ways to spend less time in any area, it’s a financial win for your startup. It really doesn’t matter where you’re at in the startup process either. Let’s say you’ve only started to figure out how and where you’re going to find your financial backing. If negotiations with an investor take too long, you could run out of any cash you currently have. But, if you’re already putting out products, then the focus should be on the efficiency of the production and delivery systems in place. The sooner, the better, with as little risk as possible is the way to go.”
Plan B
PixieLane specializes in fun and fabulous women and children clothing. Their Founder, Lori Price, believes having a backup plan in case of anything is a shrewd move.
“No matter how much you believe in your startup, you don’t have total control over what happens with it. While it is your idea, bringing it into a profitable reality requires engagement from large, outside sources. Sometimes, try as you might, this just never happens. That’s the way of the startup. It’s best to have a plan B ready should this happen to your startup. Whether it’s a different idea, living situation, or job, don’t forget to cover all your possible outcomes.”
One is not enough
Amanda E. Johnson is the Chief Marketing Officer of Nailboo, a brand offering dip powder kits for salon quality nails in minutes. She advises others to identify multiple streams of income.
“The riskiest thing you can do in any startup is to rely on a single source of income. I cannot stress this enough; one is not enough. I’m talking about your startup and personal life here too. As someone who is working to establish their startup, there will be many more financial demands of you than most others. As we’ve seen in recent years, the world around us can shift in an instant causing those streams of income to dwindle or dry up. There’s no telling when a shift is coming but being prepared for when it does is the most helpful thing you can do.”
Business insurance
It seems obvious, but business insurance can be overlooked. Spot Pet Insurance is a business providing pet insurance. Their CEO, Trey Ferro, considers it critical for any startup.
“Anyone with the mentality of ‘Oh, surely something bad won’t happen to me’ is doing nothing more than tempting fate which, in my mind, is a less than ideal position to be in, especially when operating a startup. No one can read the future and pretending it doesn’t exist is no solution either. Take the time to review all options when it comes to business insurance and follow through with it. You may not need it, but your future self will thank you if the unexpected happens.”
Risks are inherently part of being an entrepreneur though, as evidenced by the experts, there are ways to reduce the risks. However, it’s important to note the difference between eliminating and reducing risks. If risk is eliminated, the value of the outcome is as well. The flip side to this is that by accepting risk, one accepts the possibility of a great outcome. Of course, this is all to scale as stated by author Robin Sharma, “If you only take small risks, you are only entitled to a small life.”
