Every time you read about the government's plans for creating much-needed jobs, you will see that entrepreneurs are seen as one of the keys contributors. "And yet, the chances of small business start-up success are not that good," says Guy Eastoe, MD of Snap Tech International.
According to the US Bureau of Labor Statistics, only 20% of start-ups make it to the second year of operation, and only half make the five-year mark.(1)
"In other words," says Eastoe, "entrepreneurship is not for the faint-hearted. It is risky. But, then risk and reward are closely entwined, so realising your dreams always involves risk. The real question, surely, is understanding the risks your particular business faces, and then taking appropriate action to reduce it."
Notice the word "appropriate", the right amount of action and attention for the risk.
Reduced risk, increased chance of success, it's a simple as that. "In reducing your risk by taking action, you automatically also reduce the fear that is the flip-side of each risk, and thus the potential for paralysis," he says.
To reduce your risks and conquer the fears that could paralyse you, here are three steps you must take:
* Understand the probability of the risk materialising. For example, for many entrepreneurs, a key fear is hitting sales targets. So, what is the probability of your sales being lower than expected? You need to be calculating about this, and not emotional. Ask others, do research, consult with a business coach.
Once you have a logical, clear understanding of the likelihood that your sales will be lower than expected, then rate the probability on a scale of one (low probability) to 10 (high probability).
* Work out what its impact would be. Continuing with the same example, now look at the possible impact it would have on your wealth, your business success, your family life. Again, be analytical and truthful, using your coach or a mentor as a sounding board, if necessary. Use the same 10-point scale to rate the impact of the risk materialising.
* Develop and implement a plan of action. Now, multiply the two numbers you arrived at in the previous two steps (worst possible case is 10 x 10 = 100). By multiplying the probability by the level of impact, you are in effect quantifying the level of planning and action that you should devote to each risk. If the risk/probability number is under 36, you can relax somewhat and not much action is necessary. Anything over 36 means an action plan is required; anything over 60 means you need to move boldly and quickly.
Eastoe says: "This exercise should be done for all the risks you identify. It will not make the risks disappear, but it will enable you to understand which the biggest risks are and how much attention to pay them. Obviously, you will focus on those risks that are most pressing in terms of timing."
To demonstrates the value of this system, Eastoe cites the experience of his friend Mario, who runs a boat-storage business and was building a new warehouse. "It was a large project, and the risk of cost overruns kept him awake at night. Together, we did the three-step analysis. The probability/impact number came out at 56, indicating he was right to be worried.
Instead of having sleepless nights, Mario worked out what to do, took the necessary actions, and was soon able to sleep at night.
"Six months later, I am happy to add, he had a new warehouse, on time and on budget."
Risk, and its inevitable fearful corollary of the unknown, can be a debilitating distraction. So take the steps to understand the real nature of the risk, how probable it is and what the impact would be; you are empowering yourself to take appropriate action.
(1) Ken Speights, "Success rate: What percentage of businesses fail in their first year?", USA Today, (21 May 2017), available at https://www.usatoday.com/story/money/business/small-business-central/2017/05/21/what-percentage-of-businesses-fail-in-their-first-year/101260716/
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