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Weigh risks versus rewards as you plan to set up an enterprise

Stacks of gold, money and coin

Weigh risks versus rewards as you plan to set up an enterprise. PHOTO | POOL

When we think of an entrepreneur, we imagine someone who is unafraid to take chances, and who then draws massive rewards from their risk-taking.

After all, taking no risk equals gaining no return; at least that was what they told us in our business classes. Investors are rewarded for taking risks.

That profit is a reward for taking risks is true, but this is only part of the story. Not all risks are rewardable, which is what makes the entrepreneurial win particularly lucrative.

You don’t become a successful entrepreneur simply because you decide to start a business.

Some companies start with reckless risk-taking, which is wasteful.

Entrepreneurs should take responsible risks in their ventures because they affect not only their own lives but also those of other stakeholders.

Weighing expected gains against potential losses is an exercise that must be done judiciously.

Does this mean you must be completely certain of the outcome of your business?

Well if you were, then whence would be the risk-taking?

Hence from where is the reward? This is why business sectors that are saturated struggle to make sensible profits. Taking a “risk” in such a segment is hardly rewarding at all.

Risks that are worth taking involve some element of freshness. It could be customising a product to serve a previously ignored niche, or bundling some previously discrete products to increase convenience, etc.

Once you have a new idea, take your time to research its viability.

But also, don’t take too long while on the same. I say this because speed is one of the risks rewarded in entrepreneurship, yet, it must be calculated, not blind.

The market rewards those who move first, but also those who move fast.

Launching your product before anyone else is a good step, but a good next step is to scale your business quickly before competitors outpace you.

Scaling is a science that involves you running your business like an experiment as opposed to rigidly holding on to your convictions about what the market needs.

A good way to test your experimental hypothesis is by using informative financial data.

Evaluate market feedback on your product to minimise expensive and unrewarding risk-taking.

Convert these market insights into tangible (and profitable) outcomes by projecting your expected income against expected spend and adjusting what elements you need to.

The entrepreneurial kingpin is the one who takes responsible risks to convert their idea into a captivating product. This they do most affordably, and at a competitive price.

The writer is the Finance and Strategy Lead at Red Beryl Consulting.

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