How can an entrepreneur manage RISK?

The tip:

When entrepreneurs start up a business, the story is not just the start up but its only the climax. After putting up the ideas to life, there are certain risks involved all around which can be related to acquisition of resources, environmental concerns, competition, regulations, market conditions & also customers.

Specific types of risks:

Risks which entrepreneurs encounter are of two major types i.e. internal (problem) or either external (threat). Internal risks include managerial issues, strategic issues, operational issues & financial issues which needs a strong resources & knowledge base to handle wisely. In contrast, the external threats include economic instability, political turmoil, law & order situations, terrorism, & bad conditions. All these risks, put the entrepreneurs into hard times and they must take feasible actions.

What to do after identification of risk?

They rank it, and calculate/estimate the probability of the consequence of each risk and then to manage/ minimize their risks, entrepreneurs engage in the following decisions:

1. Should accept it
2. Should try to minimize it OR
3. Should transfer it OR
4. Should try to eliminate it

Possible actions related to managing risks:

Entrepreneurs can choose either minimization/transfer/eliminate their risks through following ways:

1. Research & Development:

Most of the firms incur a huge investment portion into this area. Through this activity, firms enable themselves to filter out their surrounding to catch the possible threats & opportunities to be proactive in their progress. Most of the firms have captured/achieved milestones through R&D, some by identifying un-met needs i.e. identifying un-discovered markets if I say in our terms and others by taking proactive actions like one of the French bank did before the great depression of 2007. That bank found one physician, who calculated the risk for it and forecasted that in the next few years, investment banking in U.S will go crashed, leaving the overall economy melted down!

1. Insurance:

Getting a right insurance against your risks is very important as to minimize the possible effects of losses you may face. For this purpose, businesses choose the best suited insurances for the following:
• Property & Casualty Insurance
• Key Person Insurance
• Group life insurance
• Fire & disaster Insurance
• Terrorism Insurance
• Accidental Insurance

1. Securitization:

Through securitization, businesses minimize their financial issues by issuing securities. Investors invest in their securities & earn interest, on the other hand the firm itself is enabled to transfer its risk to the investors and use their funds to take itself out of the problems.

1. Innovation:

Product innovation/process innovation are two major concerns of any firm they continuously strive to upgrade their market share nowadays. They sponsor new ideas, create new ideas & purchase new ideas to eliminate their competitor’s threat from their way. This way they get a good publicity, and customer mind share.
Apparently, managing risk is a very delicate task, which requires each entrepreneur to work in all dimensions rather than focusing on a straight escalating way!

Thank you:)