Entrepreneurship and risk go hand in hand. Whether you’re launching your startup or expanding your service offerings, every venture brings the risk of failure. Yet only 17 percent of executives surveyed said their risk-evaluation procedures were working, and a staggering 70 percent said their companies had no such procedures in place.
Instead of taking each decision as it comes, formulate a deliberate risk-evaluation process from the get-go. Every opportunity should drive forward your company’s long-term vision, but there are a few principles that ensure you’re making smart moves when it comes to risk -- not blind leaps of faith.
1. Balance your bottom line with innovation.
As a leader, you don’t want to stick to the status quo, but you can’t completely abandon business as usual. This means balancing two competing priorities: maintaining your revenue model and driving innovation. The moment you stop looking for new opportunities, your business risks becoming obsolete.
Related: How to Think Like an Innovator
To identify the best opportunities, you have to understand how your market is evolving. Otherwise, industry changes and profitable opportunities will fly past you, giving your competitors an advantage. Stay on top of change by constantly monitoring your environment, examining other industries’ best practices, staying current on market trends and continually improving yourself. Look for emerging patterns and draw actionable insights from them so you can make informed decisions about where to invest.
2. Evaluate opportunities with a critical eye.
Don’t charge into every opportunity that presents itself. Take a step back to examine the risks involved. Start by gathering as much valuable information as possible. Identify courses of action, and list possible outcomes to weigh your options. This approach will ensure you’re not driven by emotion or held back by fear.
Next, return to your company’s unique value proposition. Does this new product, service or market complement your core competencies? Are you seen as credible in that space? If an extension strays too far from your current offerings, customers may not be willing to buy it from you.
You need to set a reasonable return-on-investment level -- not just regarding financial gains, but also in establishing marketplace position. How could this lead to new customers or diversify existing revenue streams, and what timeline is reasonable to realize those returns?
Finally, get feedback from trusted advisers. Walk them through your thought process, asking for help identifying risks you may have overlooked. Gathering feedback from a variety of sources -- customers, employees, third-party analysts and even competitors -- will allow you to more accurately gauge risk.
Related: So, Your Startup Is All Grown Up. Now What?
3. Say no to saying yes.
As you calculate risks, be prepared to turn down some really good opportunities. If you’re an idea person, saying no can be hard. A trusted consultant told me, “You have so many ideas, but you can’t realistically pursue them all. You have to learn to say no to most of them so you can say yes to the very best.”
Over time, I’ve seen that saying yes to everything would mean going wide but not deep. It’s better (and more profitable) to be an expert in a few areas than to offer shallow knowledge in everything.
4. Be ready to change course.
Once you’ve walked through this process, keep your forward-focused mindset. As you start implementing new ideas, you may need to change course.
A few years ago, my firm took a risk by launching a research group. After going to market, we realized our clients’ budgets were shrinking in this area. We went back to the drawing board, creating a new approach focused on leveraging consumer insights and data to drive the creative process. Our new approach is gaining traction, and we’ve expanded our capabilities in this area to keep up with the demand.
Developing a new product is risky -- you’re wagering time, money and talent. As any entrepreneur will tell you, the risks don’t disappear after your startup gets off the ground. To grow, you have to explore new products, offer new services and experiment with new markets. By developing and implementing a risk-evaluation procedure that works for your business, you can plan your next move with your eyes wide open.
Related: 7 Ways to Ignite Innovation and Surpass Your Competition
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