Q How can a small business owners calculate risks vs. rewards for growing their business and creating opportunities in today's uncertain financial market?
Colleen Leader, Loosethreadstitchers.com
A The challenge for an entrepreneur is not calculating risk, but mitigating risk while preserving upside. I can't tell you where the economy will be in a year, but letting opportunities pass is a risk of its own. Businesses need to grow to thrive. Risk is not an abstract financial concept, but real uncertainty about the future. If you throw a ton of money early at a poorly researched idea and build well in front of demand, you are taking on way too much risk. In contrast, if you minimize early expenses and generate cash quickly, you cap your downside while maintaining the upside. The right actions can mitigate a lot of risk.
A good place to focus is start-up costs. What do you have that you can re-purpose? What can you beg, borrow or steal? Who needs your product enough that they are willing to commit early? Can you get deposits or pre-paid subscriptions? Creativity around what you really need and when you need it can minimize cash outflows. Take advantage of the current economic conditions -- people need to move product and fill space. Deferring investments early in the process substantially reduces your downside.
If you are expanding to a new market or developing a new product or service offering, realize that this requires learning and adapting. That takes time. Minimizing startup costs and generating early revenues mitigate risk; so buy time upfront to increase your probability of success.
David Deeds, director, Morrison Center for Entrepreneurship, University of St. Thomas, Opus College of Business