ESYB2 010 - Five Types of Business Risk
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[00:00:00] Most people know that business can be risky, but most people don't distinguish between the types of risk, of course, right? So let's talk about the five types of business risk that there typically is, and which risk is okay, and which ones you want to minimize. Of course, most people, when they talk about business is risky, they're talking about financial risk.

You're going to lose your money. It's a known thing. Most businesses fail. And of course, we hope that yours won't, but most do. So be careful. And of course it's especially risky if you take a loan or use money that is not yours to start a business. And of course you have to think about maybe. The time that you're spending working in your business, maybe that's the money that you're not earning from a potential job you could have been doing and earning money there.

So there's a lot of ways to calculate risk. And of course, when you start out, that's something you want to try to minimize and start small, especially if you're a first time entrepreneur. Because most first time entrepreneurs make a lot of costly mistakes, and ideally you [00:01:00] want to learn cheaply. So, be careful of high costs when starting out and always try to see can you do something cheaply.

Now, there's another kind of risk called product risk. This is something that applies to complicated products, let's say you have some interesting New startup idea, but it takes a lot of programming hours and you have to pay for the programming hours And you have to outsource the work or maybe it's gonna take many months Well, the more complex your product is first of all It's gonna take more money and it's gonna take more time and it's gonna take a bigger team Whenever you increase any of those that just delays your launch and the longer the launch is delayed Then just more bad things can happen your team might get Discouraged, you might get discouraged, you might run out of money, you might miss deadlines, you might realize you need to spend way more money and hire more engineers.

So all those things are part of product risk. And that's [00:02:00] another reason why you want to keep your products simple when you launch. And in another part of this course, we're going to talk about the Eric Ries MVP, minimum viable product. That's something you apply to your business. If you have a complicated idea to minimize your product risk.

Now there's another risk, it's called market risk. This is basically in case you have no adoption. Like you launched your new startup or company and nobody's buying. Why aren't they buying? Do they, customers not like it? Or is your market too competitive? You can't stand out? Or is there a better product out there?

Or did you just not Foresee the customer's exact needs and wants so that it doesn't actually help them in the way they need. So this is a risk that basically when you launch, you just get no sales for some reason. And the way to mitigate a part of that is of course to do your feedback gathering and talking to potential customers and all that.

And understanding the market you're getting into, all of that helps you minimize your market risk. [00:03:00] So that when you launch your product, it is a product that people actually go and buy. and they want. Now, another risk is different. It's a relationship risk because as you're starting your business, it's going to take a while to get it successful.

And during this time, most people struggle financially. So if you have family, if you have relationships, they have to deal with you not making money and that puts a strain on your relationship. So it's actually something that affects your personal life in a very real way. You hope it doesn't, but it does.

But, and you hope it's not going to take too long, but usually it takes us longer to succeed in business than we hope and we project just because we are optimistic as entrepreneurs. So it usually is a long time. of you not doing well financially, and that has a direct implication on your friends and family and relationships.

And this is something you have to consider before getting into business. It seems like, oh, hopefully it won't happen, but it's a very real thing that happens to a lot [00:04:00] of people. Now, lastly, there's another risk, lifestyle risk, you're risking your effort and your time. Of course, nobody wants to risk that.

But actually, that's okay because you're actually going to be learning, even if you fail, that effort is not a waste. Every effort you put in, well, you're doing something which is helping you learn so that your next idea will be more successful. So that's actually okay. That's something you want to be putting into it.

The time and effort, if you lose it, it's okay because it's not a loss. You learned and you made yourself a stronger entrepreneur, so that's fine. All the other ones, you do want to be extremely careful.

