Investors know that to accurately gauge the health of a startup business, they need to look at how much time the managers of that startup spend on evaluating risk. They determine how much effort goes into containing bad risks, and how much energy is invested in actively seeking out new and calculated risks that are anticipated to end in a positive result for the business.
Investors like to see a certain element of risk taking in a potential investment. They tend not to fund overly conservative business plans, but nor will they invest in a wildly risky one. They want to see homework done, and they need to see commitment. This indicates business intelligence on behalf of the entrepreneur, which is a positive indicator for the future success of the startup.
How Do I Avoid Bad Risk?
In business, as in many things, there are no guarantees, but a lot can be learned from the experience of other entrepreneurs and business experts. Some general rules of thumb include:
Solve Existing Problems
It’s risky to create solutions for problems that don’t yet exist. You won’t have any customers. Aiming to meet a significant customer need that already exists is a less risky option.
Create an Idea with Legs
One good product or service, with no plan for a line extension or additional services, will very soon be outstripped and outgrown by your competitors. Mitigate the risk of competition by planning to continuously upgrade and innovate. Do this from the outset, as part of your proactive business plan.
Don’t Go It Alone
It’s natural to want to be the best in your field and to make sure you eliminate all competition. However, when you forge partnerships with others of like mind, the sharing of resources and the economies of scale help to make risk less unpredictable.
Use Investment Wisely
Lots of initial startup money does not reduce risk, and it’s not a guarantee of success. Try to fund your initial phases with inside money, using investor funding to expand and accelerate growth.
Change is necessary and risk is essential. Investors know that more is learned from failure than from success.
Accredited investors who appreciate the risks entrepreneurs take with their businesses are your most likely source of capital. To learn more about accredited investors, visit VerifyInvestor.com.