Starting a Business? Do You Know the Real Risk?

by / ⠀Startup Advice / September 23, 2010

Recently Jay Goltz, a blogger at The New York Times, published an article about the real numbers behind starting a business. He noted that many people who start businesses don’t do the full research behind what it will take to get going. According to him there are two major factors to look at when starting a company. One being the unknown challenges you will encounter and the other being the more predictable challenges you will encounter.

According to Jay the unknown challenges can include: “Will customers flock to your door, and if so, how many? Will your marketing efforts pay off as you hope? Will your competitors sit back while you take their customers, or will they discount aggressively to hold on to those customers? Will the people you hire turn out to be as great as you imagine they will be? Will the Web designer deliver the great site that you are counting on? Will some governmental agency give you grief — or maybe even squash you like a bug? Will the market change as soon as you open for business as many experienced after 9/11?”

Then there can be more predictable hurdles like: “Maybe you did some cost projections but you did not include freight. Maybe you timed how long it would take to manufacture something but you didn’t realize there is a difference between how long something can take and how long it really takes — especially when you are not the one doing it (or you have to do it all day in between lots of interruptions). Or maybe you didn’t include some expenses in your projections: charge card fees, workers compensation insurance, waste, accounting fees or 20 other things.”

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Now by doing your research you can drastically decrease the risk of these hurdles getting in the way. The unknown challenges are generally impossible to prevent and that is where the rick lies in starting a company. But anything that falls into the predictable hurdles can be avoided or at least decreased if the founder put the time in and researches the business they are getting into.

Jay says “Ultimately, the question of whether to start a business should hinge on one question: What is the worst that can happen?”

One way to look at it is to say how much will it take to start the business? Inventory, website, marketing, store front etc. Then how much of that could you potentially regain if things went south as in selling off the inventory.

Now your looking at what the real lose you could incur if your business fails. This is the worst that could happen when you start your business. Is it worth it?

Starting a business will ALWAYS involve risk. No matter how much due diligence you do there will be risk involved. Now will you take and accept this risk? That is up to the individual. There is no rule saying you can only take $10,000 in risk or $100,000 in risk. It is up to you to decide if you can physically and mentally take that risk.

Having a number to look at though will help you determine and understand what you are getting into. It will lay out your worst case scenario and then you can evaluate from there. And don’t forget to do the research in order to eliminate as much of that risk as possible!

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