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Business Risk: The Ongoing Story (Posted by Shell LiveWIRE Winner, Ben P F Smith)

Tue, 21 July 2015

Risk remains an element of business no matter what level you’re operating at; it simply evolves the more mature your business becomes.

There is a common misconception that entrepreneurs are risk takers. The best entrepreneurs are not; they minimise the level of risk which they are about to undertake as much of possible. Of course, there is an inherent uncertainty in starting anything new, but this shouldn’t be an excuse to make decisions blindly. 

 

Initially when you are starting up, you face most ambiguity around your proposition. At this stage there are two main forms: market risk (do people want what you will create?) and product risk (can you create what is desired?) So how do you test if people want something? You ask them and you create a minimum viable product to see if people will buy it. There is a common sin that people commit when doing market research: the leading question. People are fundamentally nice, so if you ask someone if they like your idea, they will probably say yes without giving any commitment. The easiest way to truly understand a customer is to find out about their lives. If you zoom in on your solution too quickly, you are likely to get inaccurate data.
Once you’ve tested and built your product or service, and attracted those ‘early adopters’, the risk evolves. It now becomes a case of attracting wider customers. How do you do this cost efficiently? The easiest way to develop your route to market is to be specific in your customer segmentation. Once you have completely narrowed down who your customer is, you can study their behaviours and their buying habits. 
 
But even if you have successfully got in front of your customers, how will you encourage them to buy from you? There is an opportunity cost involved in everything – and people should spend their time and money preciously – so as a new business it is up to you to convince them. The more you ‘de-risk’ the proposition for the customer, the more likely they are to try you. Free trials, money back guarantees and special discounted rates are all examples.
 
Now that you’ve proven that there is a steady paying demand, you may think about taking on investment to accelerate the growth process. You’re essentially attempting to convince someone to give you money for something which may or may not work. The better your sales track record, the more realistic your financial projections appear, and the less risky it becomes. 
 
Often organisations use their first round of investment to grow their team – another risk! You’re a small organisation and the trust you’ve built is based on the people in the business. What if your first hire ends in disaster? Again, this comes back to de-risking this employment through probation periods and track records… this list could continue!
 
Risk is inherent in everything a business does; the key is to understand this and work to de-risk the proposition as much as possible. Once you understand where you're going, it is easier to think of the risks associated and do everything possible to reduce this uncertainty. That’s why these early adopters and early angel investors who are willing to take a punt are priceless to your business.

About Ben Smith 
 
Ben Smith won a Shell LiveWIRE Award in 2014 for his business, Frumtious, a health-conscious natural food company. He now works for UnLtd on the Big Venture Challenge investment raising programme. Ben helps social ventures - with a focus on those operating within the education space - to raise risk capital to scale their operations and social impact. Ben also sits on the board of Birmingham Town Hall Symphony Hall.
 
You can follow Ben on Twitter @benpfsmith 
 

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