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Conquering business risks
Last February, I met a doctor. Not the normal doctor you go to see when you've got the jiggles. This person has a doctorate degree in quantum mechanics. And most surprising part is, I never knew until that moment that he is a doc. I always knew him as the co-founder of one of the best forums on the whole world wide web - "Seeds of Wisdom Business Discussion Forum".The person I met is Dien Rice. Even though he has a phd in quantum mechanics, I find him to have the sharpest business acumen. On my request, he shares a great business lesson with us all.
The "Untold Story" of Conquering Business Risks
by guest poster Dien Rice, Ph.D.Some entrepreneurs are big successes. But if they were to start again, in a different city or a different country, with different circumstances - could they create a successful business again? Many of them couldn't. But there are a few who could. These people are the successful serial entrepreneurs, I've always tried to study.
One thing ALL successful serial entrepreneurs do is this very important principle. They actively work to...
REDUCE their risks!
Many people have this image of entrepreneurship as a "high risk" activity. And the fact is, practically all business does involve some risks. However, successful serial entrepreneurs actively work to reduce their risks as much as possible. Let me give you an example.
Richard Branson wanted to start an airline - Virgin Atlantic Airlines. Now, he could have bought his first plane the usual way, and just ponied up the cash. But given the high cost of airplanes, if his airline business didn't work out - he'd be up to his eyeballs in debt due to the cost of buying an airplane. And that large debt could even threaten his other businesses. Because of this, he actively worked to reduce this "downside".
In Richard Branson's case, he used his negotiating skills. He worked out a deal with Boeing, where he would buy a second-hand airplane - with an added condition. If his new airline business didn't succeed, Boeing would buy the airplane back from him in a year at full price! That was all written in as part of the deal.
Think about it... Doing the deal this way greatly reduced his downside risk in starting his airline!
He didn't eliminate his risk completely, since if his airline launched and he got no passengers, he'd still lose money due to the cost of fuel, marketing, staff wages, and so on. But, at least he wouldn't be down due to the cost of buying the airplane. He did reduce his risk effectively!
Fortunately, his airline business survived and succeeded - and Virgin Airlines has greatly expanded in the years since he started it. So he never did have to sell his first airplane back to Boeing. However, the fact that he had negotiated this in his agreement to buy the plane in the first place, immensely reduced his "downside" risk in starting the airline.
That's just one example of how a serial entrepreneur can reduce his or her risks - and when you study successful serial entrepreneurs, you'll find many more. You can use negotiation as a tactic to reduce your risks, along with a few other techniques. So, if you want to give yourself the highest probability of success, focus on reducing your downside risk!
Or - as Donald Trump has said: "Take care of the downside, and the upside will take care of itself"!
Action summary (by Ankesh Kothari):
- Reduce your risks so that you lose nothing, or very little, if the business fails. What can you do to lower your business risks?
- Study successful serial entrepreneurs. Study people who have enjoyed more than 1 success.
- Visit Sowpub forum and learn insightful business tips from many successful entrepreneurs.
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Posted on 11/25/2004 | Permalink | |
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