Risk-taking in business. This is how you deal with it.

risk taking in business

Risks surround entrepreneurship. But what not in life? If you want certainty, you definitely shouldn’t start doing business. However, if you “cannot” do anything else, knowing how you deal with risk-taking in business is useful.

Table of contents

Strong growth in the number of budding entrepreneurs

The Economic Institute for Small and Medium-sized Enterprises once calculated that 2 out of 3 people consider starting their own company an exciting career move. That will certainly not diminish in the future. 

Self-employment or entrepreneurship is on the rise! Yet, it remains a risky business; according to a Statistic Brain study, 46% of companies fail due to incompetence. Moreover, only 40% of small businesses are profitable.

A wish is not yet a choice

However, only 10% of people start a business of their own. So, that is a relatively small number. If so many people find it an exciting career step, what stops those from putting their money where their mouth is? 

Admittedly, a positive image of entrepreneurship is not yet a real wish to become an entrepreneur, let alone a choice. That’s an important distinction. Apparently, few dare to take the step to independence.

Risk-taking

Risk-taking says something about the willingness to take risks. It is about dealing with uncertainty and accepting that you could lose money, freedom, or reputation. So, if necessary, you must be able to make your loss on time. Risk is part of entrepreneurship but is strongly related to the person who perceives it. 

For example, something may seem very risky for someone, but it is a challenge for someone else. Are you someone who mainly sees problems? Someone who raises obstacles? Do you see the risks more often than the opportunities? Find out how you best deal with risk-taking in business.

Tips to better deal with risk-taking in business

  • Make a risk analysis: Write down all the possible dangers.
    • Don’t be humble about that, think of as many risks as possible.
    • The secret of that is you write it off you.
    • Then write about the consequences of each risk when it becomes real.
    • Also, indicate what the risk is; financial, emotional, or personal.
    • Or make use of the structured FMEA method; see below
  • Then consider every risk. If necessary, try to increase the feeling that you experience. Enhance the feeling and ask yourself: How bad is it when it becomes a reality?
  • What alternative can you offer? What other options do you have?
  • Example: “I can lose my house.” Of course, you don’t want that. But how bad is it really? You can rent something smaller, maybe – no matter how bad – you could live with your parents or close friends. It only makes you stronger. There is always a solution or way out!

Risk Analysis with the FMEA method

The Failure Mode and Effect Analysis (FMEA) is a good way to assess the risks involved with entrepreneurship. The FMEA is a systematic way to detect a product’s or a process’s risks and determine the extent of those risks. If you know how large the risk is, you can take targeted measures to reduce the risk. These measures form the basis for the improvement plan or business plan.

This is how FMEA works

When making an FMEA, the possible errors are central.

For every error, you assume the risk that arises from the mistakes. Then you determine the consequences of a mistake. Write the possible consequences behind each mistake. Keep in mind that an error can have several consequences.

The risk (R) is calculated using three factors.

The first factor is the severity (E) of the error. How bad is it when the error occurs when it goes wrong? If you forget to put water in the coffee maker, it’s okay. If your car’s brake does not work, it is very bad and dangerous.

You express the seriousness in a number between 1 and 10. This number is an estimate. The worse the error, the higher the number.

The second factor is the frequency (F) of the error. How often does the error occur? You express this in a number from 1 to 10. This number is also an estimate. The higher the number, the more often the error occurs.

The third factor is the detectability (D) of the error. Can you see or notice when the error occurs? If you can see it right away, then the number is low. Give it a large number if the error is not visible or remains hidden. This number is also an estimate.

The risk (R) is calculated by multiplying the three factors:

Risk = severity X frequency X detectability

Determine this for every error you fear, or that could hurt you and your business.

If you do not risk anything, you risk much more.

Dr. Martijn Driessen

Read more about the difference between skills, abilities, knowledge, and competencies.