This article are provided for information purposes only, and are not intended as legal advice.


How much risk does a business owner need to take?

October 8th, 2009

Growing a business is all about making decisions.  You may not realize it but each decision is a risk.  Even if you make the decision not to change what you are doing has business implications.  What if you made the wrong decision and you should have changed or you should have carried out one extra product line.  Can risk be rewarding, definitely.  Look at the TV show American Idol.  I understand that all the major networks turned down the show and did not think that it would work.  Fox Network took a risk and look how successful that show has become.

 

In a slow economy, some industries do better than others.  As the economy improves, some businesses and industries will improve faster than others.  In order to make money, you need to take some risks.  Some business owners are risk averse and never change very much but their business could go stale as the world and technology changes.  In a world of changing technologies, you need to keep up and keep buying new technologies but did you pick the right one.  You could have implemented a system where you scan documents but if you paid an additional $50,000, you could have gotten point of sale technology that would ultimately reduced labour costs, data entry errors and now you have more timely information.  You may have kept up with technology but one may be a dead end product that will have to be replaced in a few years, the other, you can continue to change and improve.  Picking technology is a risk.

 

Expanding the business is a risk. In a slow economy, do you go out and try to get good staff who used to work at your competitors to help you grow your business?   If you have many competitors, do you look to see who is a strong competitor, who is a weak competitor, do you try to target the customers of the weak customer or do you try to buy the weak competitor and reduce the competition.  By buying your competitor, you are taking out one business who competes against you but if the company was in dire straights, they may have been low balling the prices to your customers and putting downward pressures on your gross profit margin.  By taking out your competitor, you now may be able to raise your rates back to normal.

 

These are all business decisions about operating your business and expanding your business.  Each one will result in an action which will improve, maintain or weaken the company.  Each decision that you make will affect the direction and growth of the business. Most people do not realize that another term for making decisions is determining the amount of risk that you are willing to take when operating your business.


Filed under: Business strategies — Gary Landa @ 9:40 am


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