April 18, 2021 • 2 min
Risk is inherent in all business activity. Start-ups, for example, face the risk of too few customers, and therefore insufficient revenue to cover costs. There is also the risk that a competitor will copy the company's idea, and perhaps offer a better alternative. When a company has borrowed money from a bank, there is a risk that interest rates will rise, and repayments will become too burdensome to afford. Start-ups that rely on overseas trade are also exposed to exchange-rate risk. Moreover, new businesses in particular may be exposed to the risk of operating in only one market. Whereas large companies often diversify their operations to spread risk, the success of small companies is often linked to the success of one idea (the original genesis for the start-up) or one geographic region, such as the local area. A decline in that market or area can lead to failure. It is essential that new businesses are mindful of market changes, and position themselves to adapt to those changes. At its heart, risk is a strategic issue. Business owners must carefully weigh the operational risk of a start-up, or the risks of a new product or project, against potential profits or losses - in other words, the strategic consequences of action vs inaction. Risk must be quantified and managed; and it poses a constant strategic challenge. Fortune favours the brave, but with people's lives and the success of the business at stake, caution cannot simply be thrown to the wind.