How Can You Reduce the Risks of Business Startup?
by Dominic Basulto, contributing writer
Going it alone in creating, launching and growing your small business is risky without expertise. Even if you have a decade’s worth of experience within a particular industry, it is quite likely that you might not have expertise in some other area – such as finance, logistics or marketing – that is also critical for growing a startup company. Therefore, the key to success is discovering the proven, time-tested ways to reduce the risks of entrepreneurship.
Develop a realistic business plan
One of the easiest ways to reduce the risks of creating and launching an entirely new business from scratch is developing a realistic business plan. This is where the expertise of a mentor or business coach can really be valuable – he or she can guide you in developing the business plan and ensuring that it makes sense for your industry.
For example, say that you are planning on opening up a new restaurant in the Orlando area. Working with a business coach, you would be able to develop estimates for the size of your potential customer base, create short-range forecasts for revenue and profitability, and even develop a marketing strategy designed around the local tourism industry. This business plan could then be used as part of your decision-making process. If you’re entering into leasing discussions with a local property company, you’d know exactly how much you could afford to pay each month and still expect to break even.
Understand your competitive place in the marketplace
If you are developing a one-of-a-kind product or inventing something entirely new, it’s easy to make the assumption that you don’t have any competition in the marketplace. But the reality is that all businesses have competitors, and that’s why it is so important to have an understanding of where you stand in the marketplace.
One basic framework for understanding this is known as SWOT Analysis, which stands for Strengths, Weaknesses, Opportunities, and Threats. By thinking carefully about what your business is good at – as well as what it is not so good at – you can arrive at a much understanding of the different opportunities and threats in the marketplace.
Have a contingency plan in place
If you are bootstrapping your new company with your own funds (or the funds of generous family members), you will need to have a contingency plan in place. Realistically, your business might not break even for 6 to 12 months, and you will need financial reserves to keep you going until you start to make a profit.
In Silicon Valley, for example, one concept that is still popular is known as the “burn rate.” This is the rate at which your company is spending cash in excess of income, and gives you a very good idea of how long you have before you run out of money. That’s why so many entrepreneurs try to skimp on costs at the very outset – they might run their business out of their home for the first few months, or they might refrain from hiring any full-time employees until their business has developed some traction in the marketplace.
Launching a new solo venture can be very rewarding, but it also comes with its share of risks. In order to minimize those risks and boost your likelihood of success, it is important to assemble a team of mentors, coaches or experts who can provide the expertise you need.