Merriam-Webster defines risk as “someone or something that creates or suggests a hazard”. For small business owners, Risk is the Name of the Game. Every decision revolves around risk. It’s exciting and not for the faint of heart. Small business owners need to make “risk” decisions daily. How much risk are they willing to accept to achieve their goals? Small business owners are the daredevils of business. We applaud the successful and frown upon the not-so-successful. Having a business degree, getting business training or having years of experience reduces risk. More knowledge equates to less risk. Business training (in a class or on the job) is important – don’t try to wing it. Seek guidance (not from your neighbor or spouse) from an unbiased 3rd party who will tell you what you need to hear, not what you want to hear.
I often explain the “Risk Game” to business owners who are seeking funding for a new venture. Lenders don’t really want to loan you money if you represent a lot of risk. Conversely, if you represent little risk, banks are shoving money in your pockets. Robert Frost had it right when he said, “A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” That is because when it begins to rain, your business represents more risk.
Is this fair, well no, but no one said the game was supposed to be fair, so learn the rules and play the Risk Game. Know how to manage risk with your money and how to look like you represent no risk with other people’s money (i.e. the banks). Franchisees gamble big – often with their savings – to start their own businesses. Then, when the business does well, they use the money from lenders to expand instead of going back into their retirement coffers.
Everything is about risk – better put, everything is about managing risk. Know when to accept larger amounts of it and when to look like you are a sure bet.
Tell me what you think … do you agree that managing risk is a vital component of business success?