Starting up businesses takes a lot of money and risk. Risk is part of the job as an entrepreneur. Knowing how to manage and minimize risk can spell the difference between a failed business and a profitable one. Here are five of the most important risks to mitigate.
Structural risk refers to the fundamental, legal and organizational makeup of business. This risk involves the legal and ownership structure. Assessing this risk also means knowing how wide the leadership group is. Groups like investors, teams, and advisors fall into this category.
Competitive risk refers to the ability to maintain competitive action and reaction. This risk drives improvements like cost reduction and higher quality. Examples of competitive risk include Pricing, innovation, location, resources, promotion distribution, and intellectual property.
Execution risk refers to the versatility of the business model and how well it is being executed. This risk measures if the company’s plans will or will not work. An example is when a company is implementing a new type of information system that is difficult to integrate. The company will likely lose business due to malfunction of the system. Clients will be lost while the system is being fixed and it will cost money to repair
Investment risk refers to the ability to manage spending money in a business environment where capital is scarce and technologies are volatile, expensive, and not easily understood. This risk measures how likely it is to lose some or all of an original investment. For example, if a person were to invest in a United States Treasury bond, their money is practically guaranteed to earn a small interest. If that same person invested in a corporate bond, their risk is higher because the business is more likely to go bankrupt than the U.S. government.
Integration risk refers to the risks of inadequate integration between strategy, investments, people, and process. An example is a poorly designed data integration between two technologies that lead to data problems disrupting critical operational processes.
Risk plays a constant factor in your businesses. Knowing how to manage and minimize risk will help your business grow exponentially.
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