What Are the Risks of Starting Your Own Business?
Starting your own business can be a huge risk. Of the approximately 600,000 new companies being registered every year in the UK, roughly 60% will close their doors within three years, with 20% going under during the first year. Although these statistics do not bode well for aspiring entrepreneurs, it is important to note that there are a number of particular factors which are more likely to lead to the downfall of new businesses than others. In this article, we’ll look at some of these factors and focus on how to mitigate or prevent them, helping you prevent your company becoming one of the statistics like those above.
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Risks posed by market volatility and legal changes
Starting a new business while the market is going through times of uncertainty will always be a risky move. Even if you’re sure your product is in demand and you’ll be able to reach your target audience, a downward trajectory in the market can nonetheless kill your business. Entering the market during a volatile period without considering this in your business plan can be highly dangerous, potentially exacerbating other risks. On the other hand, having a well thought out business strategy which considers a range of potential pitfalls, including market downturns, can ensure you’re prepared for market risk.
A business plan should deal with specifics in as much detail as possible and forecast potential risks and rewards far into the future. Ask yourself if consumers would view your product as a must-have or simply something they would like to own or use. Consider your competitors: are there too many in the market and will it be hard to stand out? Will new competitors possibly overtake you in the future? How will you prevent this and stay one-step ahead?
Finally, it is important to consider the legality of your business and how potential legislative changes could affect the way your company operates. This is especially significant for businesses which operate at the limits of legality, or in legal grey areas, such as marijuana plantations in the USA.
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Being too focused on the details or only seeing the big picture
Starting and managing a successful business means being responsible for many moving parts in a system.
It’s easy to get caught up in the small details which need to be taken care of and miss the bigger picture. When this happens, the business can lose its direction, becoming bogged down in incremental changes which do not have an overall positive influence on its goals. The opposite can also happen, where the owner of a business is too focused on long-term goals and loses sight of whatever incremental changes need to take place before these objectives can be reached.
What is needed, as you may have already realised, is a balance between the day-to-day operations and incremental changes which can be affected on the micro level, and the macro-level strategies which will take longer to implement. In order to maintain such a balance, it is necessary to delegate tasks and responsibilities to employees, leaving you to focus on what is most important.
At the beginning, this may be difficult, as you may be uncomfortable with the idea of giving up some control. What can make this easier is having employees you can trust – let’s explore this in the next section.
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Finding reliable employees
Unless you’re a one-man show, you’re going to need to source reliable employees. Unreliable employees may not be one of the first things which come to mind when thinking about the risks of starting your own business,
When asking ‘what are the risks of starting your own business?’ unreliable employees will probably not be one of your top answers. However, believe it or not, finding the right staff is one of the toughest jobs you’ll have to take care of.
Reliable employees are hard to come by. Unless you already know people who have a proven track record of success in a role similar to the one you need filling, finding someone can feel like a guessing game. However, there are a few things you can do to ensure you have employees which you can trust with crucial tasks:
Hire people you have worked with before. There is no better way of evaluating someone’s professional ability than seeing them do their job for a long period of time. No CV analysis or interview technique will reveal as many strengths or flaws in a person as seeing them actually go about completing their work on a day-to-day basis. If you hire a person you already know, it will be easier for you to transfer some of your responsibility to them, freeing up time for you to take care of other business.
Wherever possible, hire people on a probation period basis or pay them a low base salary with commission based on results. Giving employees a probation period of a few months will give you enough time to figure out if they’re right for the job, and allow you to let them go without the standard notice period if they don’t fit the bill. Alternatively, you could hire people on a permanent basis and have the bulk of their salary come from commission. This ensures that they are motivated to obtain results for your business, as their pay will depend on their performance. If you feel your employees aren’t motivated enough, check out our guide on the 7 best ways to motivate employees and increase productivity
Employees with particularly specialised sets of skills will require the most trust; especially if they possess knowledge of a topic you have little understanding of yourself, such as coding. For these staff, it will be particularly important to know that you can trust them to get the job done as agreed upon deadline.
One piece of advice which most people should take is to never hire relatives. The difficulty with having family working for you is two-fold:
It is possible that your relatives won’t recognise your authority in the workplace as it is difficult for them to change their perception of you from a family member to a boss
Relatives you hire might feel like they have more authority than they in fact do simply because they know you better than everyone else, causing potential problems with other employees or productivity
It is also difficult to fire a member of your family if things don’t work out as you might be afraid of damaging the relationship outside of work. If you are thinking of hiring a member of your family, consider these risks lest you end up putting yourself in a potentially difficult situation.
Some Further Tips and Useful Resources
Starting your own business is a huge risk and something which you need to plan and consider carefully. The above tips will provide a good starting point and you can also check out our guide on the 8 skills you need to run your own business for further ideas on how you can improve your business’s chances of succeeding.
If you don’t consider the traditional recruitment method good enough for your business, you could try some of the more unconventional approaches which we have detailed in our post on the rise of unusual recruitment methods. Some of these might help you better sift through candidates and find the perfect employee.
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