The higher the risk, the higher the returns. This holds true for every business. All businesses are subjected to risks. These risks can be in form of political, economic, legal, social, technological and environmental factors. In the initial stage of a company formation, the start-up business risks are more than the risks which an established company faces. Therefore, risk analysis is important before going ahead with your business. In order to survive and grow at a faster rate, businesses need to take the risk. When taking the risk, businesses should ensure it does not sink them. Therefore, risk management becomes important. The following tips indicate how you carry out risk management and make sure that you do not perish.
Change the Current Practices
If the industry standards or norms does not sync well with the current market trend, then it is of no use following them. Sooner or later the current practices need to be changed. If your business is the first one to adopt this practice, then it is indeed a risk for you. The reason being you do not know how the new changes may work out. Uncertainty plays an important factor in creating change. In such a scenario, it is important that your business follows the market rather than the industry. Providing what the market wants is always going to be beneficial for your organization. For this purpose, conduct a thorough risk analysis of what the market expectations are. This will ensure your business takes the risk but does not sink.
Henry Ford change the industry when he paid double the minimum wages – $5 for 8 hours of work and a 5 days working per week. This was completely in contrast with the standard of $2.34 for 9 hours of work and a 6 days working per week. This revolutions occurred along with the introduction of the assembly line. All of this, was new to motor industry, but it jumped his production output significantly, outstripping his competitors.
Embrace Disruptive Innovation
Another way to take risks and be sure that you do not sink is to embrace disruptive innovation. Disruptive innovation brings about radical changes in one or more industries. Such innovation disrupts the entire industry. For example, the smartphone industry has affected other industries such as the camera industry, the alarm clocks, the calendars and many others. Such kind of innovations is a big gamble. The reason being, it takes a lot of time and most often require huge investments. In such cases, you can set up joint ventures or collaborate with other organizations within the same industry. In this manner, you minimize the risk by sharing the burden on other business organization as well. Moreover, when you succeed, it brings in immense scope to grow at a much faster rate and gives you a competitive advantage. Over a period of time, your business can develop this competitive advantage and gain a sustainable competitive advantage. A sustainable competitive advantage reaps benefits in terms of increased profitability, customer base, and goodwill of the firm.
Invest in Transformational Change
The business environment is dynamic and ever changing. A better way to cope up with the surrounding changes is to come up with transformational changes over time if you cannot have a radical innovation. Continuous improvement in your company processes, products or services minimizes the risk of staying behind the competition. A good example of this strategy is the Toyota’s continuous improvement model also known as the Kaizen model. An advantage of a continuous improvement is that you do not focus too much on one particular aspect. In addition, you can stop such changes in case something goes wrong. Thus, there is a better risk management while you carry out transformational changes in your product. For a start-up firm, they can invest in both current and transformational changes and minimize the start-up business risks. Gradual improvement in product strategy for start-ups is the best way to grow amidst tough competition from established players. At the same time, it is important to keep a close watch on changes happening in the related industries. Changes in other industries may have an impact in the industry in which your business operates.
Develop a Contingency Plan
In some cases, when you take the risk, the stakes are high as well. This means that either you will succeed or fail miserably. Therefore, it is better to be prepared for the worse. Develop a contingency plan if the original plan fails. This way, the extent of risk is reduced. It is important that a proper risk analysis is done before you take the risk. In start-up business risks, it is critical that your business has a back-up plan. Do not invest all your resources in one plan alone. Ensure that you diversify your investment in varied plans and projects. Thus, if you fall short on one of the plans, you have other plans which act as a cushion to safeguard you from sinking. Furthermore, a high risk with a minimal return should be discarded. Take up the risk only if it is beneficial for the business organization in the long run.
Collect the information from multiple sources before taking up the risk. Sometimes, a particular source may indicate it to be a good opportunity while another source would disagree with it. This is where risk analysis plays its part. Get the opinion of the heads of different departments in your organization. If the risk has severe implication on the particular unit or department then they will point it out. The collective minds from different dimensional will also provide you with a proper group consensus. At the same time, think about the long-term impact of the decision you take. Is the risk going to have problems in the future? Or will it affect the smooth functioning of other projects of your company? To answer these questions, risk management is necessary before arriving at a decision. Using the collected information may also expose more risks or opportunities for you to exploit. Therefore, gather the information and examine it for positive decision-making.
In Canada, most of the organizations fear to take risks. An article by Deloitte & Touche states that lack of courage by businesses is the reason for a sluggish economic growth in the country. A negative perspective about risk will only reduce the pace of your business growth. Some risks provide an opportunity to outpace the competitors and grow at a faster rate than the industry as well. Even if you fail miserably, it does not mean you stop there. Failure is a part of business. Make the necessary amendments that were the reason for your downfall. Try and make a better comeback by understanding where you went wrong and how can your business do better in the future. For this purpose, a systematic planning and risk management is necessary to ensure that the risks are reduced and you still try and succeed.
If you have a start-up and dealing with start-up business risks, then seek the help of a professional consultancy. Learn from the success stories of start-ups in Canada and implement certain processes and standards that fit your business organization. Dare to do something different but only after a careful risk analysis. If you need more information relating to various risks that surround your business, then get in touch with a resource center in Canada.