I took the less risky path and became an attorney. Along the way, I developed some expertise in risk assessment.
I have observed that many entrepreneurs bolt headlong into a new endeavor without properly assessing risk.
So with this in mind, I have created FIVE Key Questions every entrepreneur needs to ask about risk before they head out from port with a new business venture.
I’ve added several key resources to begin the risk assessment journey.
If you research the resources below and take them on board, you will begin to stack the odds of success in your favor.
1. Are you prepared to become an entrepreneur?
Have you done the preparation to make your business work? Do you have strong leadership, achievable vision and a business model that creates revenue and sustainability? Sounds like a formidable task when your passion is sailing, right? The key is to know before you go.
You’ve left your stressful corporate job to follow your passion, offering charter cruises on your sailboat. You’ve invested your own capital to establish “Day Dream” with the state, purchased your sailboat, had it inspected, obtained your captain’s license from the Coast Guard and obtained a charter insurance policy from your marine insurance broker.
Now, where are your customers? How will you find them and entice them to come on board and sail with you. By the way, have you noticed how many other sailboats are nearby to try to entice the same people to sail with them?
In addition, you have two voicemail messages waiting to be addressed. The first is a courtesy call from your banker reminding you that your first installment on your loan is due next week. He asked: “How are things going?” The second message is from your fiancé. She asked: “When am I going to see you this week?”
You sit back and admire your boat, and then ask yourself, “Can I do this?” “Can I make the sacrifices, do the work and keep everyone happy?” “Am I ready for this?”
Yes, if you did your homework. No, if you did not.
2. Do you have a verifiable business model with customers who are willing to pay your price?
Let’s assume that you are not using the “sink or swim” approach to your business. You have an MBA, so one would presume that you know how to prepare to become an entrepreneur. Isn’t it just a smaller version of the large corporation that you left?
So what is a startup? We now know what we did not know in 1908 when Harvard launched the first MBA program. Startups are not just smaller versions of large companies (at least until you grow into a large company).
Today, entrepreneurial education is about first searching for the business model and then executing it. Steve Blank, a Silicon Valley serial-entrepreneur and academician, is recognized for developing the Customer Development methodology, which launched the Lean Startup movement. Steve Blank defines a startup as: “a temporary organization designed to search for something that is repeatable and scalable” . Thus, a startup is looking to become something else at some point.
Steve Blank’s courses on how to build a start up suggest that you go beyond the founder’s vision to determine the customers’ problems and needs. This process is the customer development business model
Rather than an organizational chart, you can use a tool such as Osterwalder’s business model canvas.
Bottom line: If you don’t’ have customers willing to pay your price and don’t make a profit, then you don’t have a workable business model. Your biggest risk is no customers. All other concerns pale in comparison.
3. How do you prioritize potential risks?
Risk is defined as: “possibility of loss or injury: peril”
All entrepreneurs face risk. Taking risk is the first step. You need to take action on the risks that pertain to your business and your financial situation. Each scenario is unique and should be tailored to your circumstances.
If you are financially sound, then financial risk may not be your biggest concern. If your sailboat is damaged or stolen, you may have the means to replace it rather than to insure it. If a passenger sues you for damages, are you willing to put your personal assets at risk?
If your business partner is the key player, you may feel obligated to purchase key player insurance to keep the business running upon his or her death or disability.
If you are a newlywed, then family stability could be your number one risk. Will your new spouse be willing to make the sacrifices for your new venture?