Different Types of Risks in Business
Fri, Jun 8, 2012
Starting a business is risky, but its worth taking such a risk. Usually, entrepreneurs are portrayed as daredevils by the media. They are projected as someone who risked everything to start their own business, when the reality is maximum entrepreneurs had a safety net in place before they thought of becoming an entrepreneur.
The point I’m trying to make is that entrepreneurship is not about gambling so much as it’s about knowing how to mitigate risk.
As an entrepreneur/founder, you must know these different types of risk that Chris Dixon has explained so well.
Financing risk: You can’t raise money at various stages because you haven’t hit accretive milestones or your space isn’t appealing to investors.
Product risk: You can’t translate your concept into a working and compelling product.
Technology risk: You can’t build a good enough or, if necessary, breakthrough technology.
Business development risk: You can’t get deals with other companies that you depend on to build or distribute your product.
Market risk: Customers or users won’t want your product.
Timing risk: You are too early or too late to the market.
Margin risk: You build something people want but that you can’t defend, and therefore competitors will squeeze your margins.
At the early stage, the main way to mitigate these risks is to recruit great people as co-founders or early employees. You shouldn’t recruit people that will give you a high likelihood of reducing these risks. You should recruit people that give you an unfair advantage. You should try to win the game before it starts.
Startups are hard, and risky. But if you lump all the risks together, you are playing the lottery. Talented entrepreneurs identify specific risks and do everything they can to overcome them.
Do you know of some other types of risk involved in starting a business?