What are the risks of running your own business?
If you've ever dreamed of starting your own business, you've probably been dazzled by visions of working from the beach, scheduling meetings around surf conditions or simply sticking it to your old boss!
And why not? These are all symbols of freedom and autonomy, and don't we all deserve that?!
Here’s the thing though: freedom and autonomy are in bed with responsibility. When you’re free to make all your own choices, you also carry the full load of responsibility for the consequences of your choices.
As a business owner, this means you need to know your own personal risk profile and the level of risk required for success in your market. In this way, you can make responsible decisions with manageable consequences.
To help you assess these risk profiles, I’ve outlined three categories of risk that are most relevant for small business owners: financial, reputational and opportunity cost.
Financial risk
This is perhaps the most obvious type of risk and easiest to quantify, but that’s not to say it's easily controlled. When assessing financial risk, you’ll need to consider:
how much capital you are prepared to invest in your business vs how much is appropriate for your market
how reliable your cash flow will be (where will it come from and how will use it)
how you will weather changing economic conditions.
As you assess financial risk, please allow space for failure. You’re probably familiar with the catch-cry of tech start-ups: Fail fast, fail often. This isn’t meant to encourage frivolous behaviour, but rather create an acceptance of success being iterative. You will need to experiment to succeed and your biggest lessons may well come from slip-ups along the way. Budget for these.
Reputational risk
Your brand is your most important asset. A good reputation wins you work; a bad one loses it.
Theoretically, you manage reputational risk by setting realistic expectations for your clients and delivering products and services that meet or exceed these expectations.
In reality, it’s more complex than this because you can’t control the lens through which people view the world, so there’s always the potential for misunderstandings to arise. Nevertheless, you can minimise reputational risk by taking a strategic approach to your exposures. These are the points where your brand brushes up against the outside world, for example, your website, social media, events, customer interactions (especially how you manage conflict) and organisational culture.
Know your brand — including your mission, values, points of difference, voice, visuals and so on — and take a consistent approach to it. Consistently behaving as a high quality brand is the key to protecting your reputation.
Opportunity cost
When you’re spending time on your business, what are you forgoing?
The cost of missed opportunities is often overlooked in risk assessments, yet it presents a very real risk, especially if you’ve chosen to run your own business as a means of improving your quality of life.
The key to managing opportunity costs is to know what matters most to you and whether you are compromising this when you spend time on your business. Just as you would consider what you can (and can’t) afford to lose financially, you must consider what you are willing (or not willing) to forgo to run a financially viable business. Making this assessment requires you to have a very clear concept of your most important values, long-term personal and professional goals and short-term strategies.
Supported risk assessment
If you’d like to strike a balance between running a successful business and living a full and enriching life, get in touch. Together, we can clarify your risk profile and develop a plan that accommodates your personal preferences, business model and lifestyle.