Stephen Scoggins is the founder and CEO of Scoggins International Inc.
As an entrepreneur, I know that the core difference between successful and unsuccessful businesses lies in the ability to risk and reward equally.
According to data from the U.S. Bureau of Labor Statistics, “approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years.” With this in mind, entrepreneurs need to understand how to mitigate risks and maximize rewards to increase their chances of success.
Removing And Reducing Risk: Three Core Areas
The scales must be balanced with equal risk and reward at any given moment. To achieve this balance, I believe it is crucial for entrepreneurs to understand how to evaluate risks effectively. This requires thinking like an investor rather than a traditional entrepreneur or banker. As an investor, I evaluate risks and expect a four-to-one return on every dollar I put to work.
Entrepreneurs must have a risk removal (mitigation) plan to evaluate risks effectively. This plan should cover three core areas, often the root cause of catastrophic business failure: personal, business and acquisitional assets.
Personal risks include risking assets and resources, while business risks include finance, reputation and team management. Acquisitional asset risks, on the other hand, relate to assets acquired over time from business operations.
The Four Phases Of Risk Evaluation
To evaluate risks effectively, I recommend entrepreneurs consider four key phases. Within each phase, there are several considerations that entrepreneurs must keep in mind. These phases are:
1. Professional impact. Under the professional impact, entrepreneurs should consider their leadership, mentorship, communication, legacy and ability to identify bottlenecks.
2. Reputational impact. Under the reputational impact, entrepreneurs must consider honesty, integrity, relationships and the impact of their decisions on their reputation.
3. Operational impact. This form of impact involves considering flow, fulfillment, cycle times and capital investments.
4. Financial impact. Lastly, entrepreneurs must consider revenue, profit, margin, cash flow, taxes and capital investments under financial impact.
Risk Mitigation Considerations
It is easy to think that one decision can solve a problem. However, when entrepreneurs filter that decision through the four lenses, they can ensure that the solution does not cause exponential problems in other areas.
Some examples of considerations that entrepreneurs should keep in mind include:
• Verifying that their idea or brand is not already taken.
• Claiming key domain names, trademarks and business visual identity.
• Obtaining a corporate veil.
• Understanding their tax bracket and expectations.
• Finalizing an operating agreement, especially when it comes to partners.
Other important considerations include market conditions, the competitive landscape, organizational structure, cash flow management, non-disclosures, competitors, personal leadership, data-driven decisions, overall layers of risk mitigation and those representing their interests, such as legal, financial and operational professionals. Process, systems, and organizational flow are also essential.
Becoming Unstoppable
As entrepreneurs, we have two ways to learn: By making mistakes ourselves or by learning from others who have already made those mistakes and found solutions before us.
In conclusion, entrepreneurs must understand the importance of mitigating risks and maximizing rewards to ensure the success of their businesses. By evaluating risks effectively and considering key considerations, entrepreneurs can increase their chances of success and avoid becoming a statistic.
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