One of the Challenges That Businesses Constantly Struggle With Is the Risk Factor. Here Are 10 Ways to Minimize It.
Welcome back Aluxers. This one’s for all you budding entrepreneurs out there looking for ways to minimize risk in business.
So, you’re young. You don’t have thousands of dollars in your bank account to afford starting 18 businesses all at once — just to see which one works out. But you do want to start a business. Maybe to test the water and see if you are cut out for it.
But you’ve also heard time and time again all those stats about the number of businesses that fail in the first year – or first two years or five years. We’re not going to go into those statistics in this video. But we are going to help you make sure you don’t become part of them. And even if you do fail — do it in a way that doesn’t cost you much.
Aluxers, if you’re not subscribed yet, you’re missing out. Be sure to read this article right until the end and find out how…
If you’re someone who prefers visuals and narration over text, we’ve got you covered. Here’s our YouTube video for the same topic:
With that provided, let’s move on to the first efficient way of minimizing risk.
Start Small at First
So, you’ve just had that amazing business idea that’s going to set the world on fire. And you’re ready to start turning it into reality. But just remember — the last thing you want to do is spend all that time and resources on a full-blown product or service that nobody wants or needs. Because once you start getting down to brass tacks, what once seemed like the best business idea ever, doesn’t seem so great after all.
There’s a design principle called KISS — or Keep It Simple, Stupid. And that’s what you need to do when you start out to be sure that you’re minimizing risk.
If you want to start an e-marketing website, don’t spend all your money and go into debt to build the website you’ve dreamed up. Start small-scale. Or if you want to become a food entrepreneur, start with a low-key delivery service or food stall. And build up slowly.
Just take a look at how Jeff Bezos started Amazon. From the garage of the home he was renting. And using a basic website with a catalogue of books on it.
In any business, there’s a way you get in there – start small. Test the water and see if there’s a market for your idea.
You don’t need all the bells and whistles when you get started. But you need to start by testing your product. Which leads us to …
Create a Minimum Viable Product
Also known as an MVP. Think of this as the alpha version of your business. It’s the first iteration, which has only the really important features.
Having a good MVP is probably the best thing you can do when you’re starting a business. And it’s the best way to test out a market. The great thing is, even if it fails, you won’t have big losses.
The easiest way to understand MVPs is to look at game developers. They create the alpha version of a game, which only has 2 or 3 features, and they test that out. That way, they don’t need to spend a ton of money on cutting edge graphics and literally every single feature they can think of.
The MVP needs to have just enough features to be of value, and for people to want to buy it. And for you to test out if it has potential or not — in a way that doesn’t cost you much time or money.
It doesn’t have to be perfect, and it doesn’t have to be pretty. But it needs to be a good representation of the main things your product’s trying to achieve.
Remember, the main goal of your MVP is to test if your product is good or not. And that leads us to…
Measure the Right Things
We’ve said it before — what can be measured, can be improved, and it is the ideal road to minimize risk. But it’s super important to make sure you’re measuring the right thing.
Let’s go back to the game developer scenario. If more people than expected downloaded your alpha version, that means they loved it, right? Well, not necessarily.
You’ve got to ask yourself other questions — like, how long did they spend playing it? Lots of downloads could just mean you had a good marketing strategy. But if all the users spent less than an hour playing it… Well, that means the game sucked.
Look out for the right things to measure. As well as ‘how much time did people spend in your game?’, ask ‘What features did they use?/ And ‘Which ones didn’t they use.’ These questions will tell you if the game has potential. Which features you need to focus on and develop. And which ones you should ditch.
There are plenty of ways to measure your progress. You definitely want to catch up with the 15 Steps to Measure Success.
If There’s a Problem, Is It You? or Is It the Market?
Generally speaking, a business fails to minimize risk and shuts down because one of two scenarios:
- You have the right product for the wrong market
- You have the wrong product for the right market.
When you measure the success of your MVP, you are basically trying to figure out if you are in one of those scenarios.
Let’s say you want to open a restaurant. You could open a classy, upmarket restaurant in a poor area. That’s an example of the right product for the wrong market. If you’d done it in a different area, it probably would have worked.
And what if you open the restaurant in the right area – but the food just sucks. That’s the wrong product for the right market.
You could argue there’s a 3rd scenario, where you have the wrong product for the wrong market. And to that, we’ll reply by giving you this example:
There are people selling bottled air. Yes, air .. in a bottle.
Which proves, there’s no such thing as a bad product, as long as you find the right market.
And you do this with the market research. Make sure that whatever you’re selling, there are people out there who want to buy it. And find where they are.
And if you really can’t find a market for it, you’re faced with the next choice …
Know When to Quit … and When to Pivot
You need to understand the difference between quitting and pivoting. In some scenarios pivoting is the best way to minimize risk in business.
Sometimes things just don’t work out, and you need to abandon the project altogether. And when it happens, there’s nothing to be ashamed of. Many of the world’s best-known business people went through failure. They just learned from it, and put their lessons into practice next time.
But there’s a third scenario. Where you don’t just keep going like you were before — and you don’t quit either. And it’s called pivoting — or changing course.
Like Twitter did. They started out as a podcasting platform — and a pretty unsuccessful one. That is, until Jack Dorsey had the bright idea of ditching the podcasts and basing the entire platform around sharing your status. And as you probably noticed, the idea kind of caught on.
And yes, you can also pivot your market too. That means staying with the same product — but changing the market.
Pivoting successfully requires you to adapt your plan — and be a bit creative sometimes.
Have a Business Plan
Basically any business needs to do three things:
- provide value
- have a way to delivering that value
- have a way for people to pay you for that value.
If any one of these three things is at all hazy, then you’re in a bad spot.
And this is where your business plan comes in. It tells you how you’re going to do these things. And it also covers questions like:
- How much capital do you have to put in to make it happen?
- How much time do you need to do it?
- What results you expect by when?
There’s a well-known quote ‘If you fail to plan, you’re planning to fail’. It’s been attributed to a number of people, from Benjamin Franklin to Winston Churchill. But who said it doesn’t really matter.
The business plan is your route to success, and without it, you don’t have direction. Of course, you’ll want to leave room to modify your plan as you go along. But you still need to have one in place.
Don’t Quit Your Job
Bet you didn’t see this one coming but it does minimize risk.
There is this old saying that you have to go all in when starting a business, and commit 100%.
Well, that’s not how the real world works. And whoever came up with that saying probably said it before side hustles became a thing.
And following this advice is also how people go broke real fast.
Remember people selling their houses to buy bitcoin at $20k? Or people who quit their job to start yet another coffee shop? There is such a thing as a calculated risk — but you better be real’ freaking good at math if you want to bet on that one.
A rule of thumb here. You only quit your job if the side business makes you at least the same amount as your day job.
So, you’re starting to make sales, and make a living. Next, see what else you can sell.
This is exactly how some of the best-known brands started doing what they do now. Did you know that Nokia originally sold paper? Or that Avon originally sold books. What did they have in common? They diversified. And because they started to diversify, they hit on the products they became best-known for selling.
Now, it’s true — those are huge companies, and if you’ve got a small business, you’re not going to diversify in such a huge way. If you sell cookies, don’t branch out to mobile phones — but do branch out to cupcakes, and see how they take off. You get the idea.
If one thing that you sell does badly, you’ll have a back-up. And even if not, maybe the new territory you get into will bring you even more rewards than your original one.
What happens when you’re not up-to-date with what’s going on in your business area? Let’s take a look at a couple of examples.
20 years ago, Blockbuster Video were the king of video rentals, and were sure they’d stay that way.. But they got caught unaware by something called the internet. Another company, Netflix also started out as a DVD rental company. But they were smart enough to know that the future was with streaming.
Netflix could read which way things were heading. And no matter how big or small your company, you need to be like them if you want to minimize risk for your business project. Be aware of how consumer trends and technology, are going to affect it. This way you’ll know what’s about to become obsolete — and move away from that. And you’ll know what opportunities are opening up — and move in that direction.
Be Really Good With Numbers
As a business owner, you’ll often have to make decisions without much thinking time — like, ‘If we take on this client, will it be profitable’. ‘If I branch out to this business area, will it make me money, or cost me?’
To make good decisions, you need to know your numbers. And know them inside out. You don’t need to be a math genius to do this. But have all the right numbers ready in your head. So you can make simple calculations when you need to.
What’s your monthly revenue? And your monthly expenses? How much does a new customer usually bring to the table? And what resources — fees, time, etc, does it use up to service that customer? Or to make one item of this product? Have all of these at your fingertips if you want to minimize risk. That way, when you have to make a decision on the fly, you’ll be able to do the sums and make the right choices.
Aluxers, what kind of business would you most like to start? We would love to hear from you in the comments below.