Sunday, December 19, 2010

Business Basics - Understanding Risk and the Certainty of Uncertainty

Anyone who has been responsible for a business for some amount of time knows or quickly finds out that one of the biggest mistakes a business operator can make is not expecting to make a mistake. It can even get worst at times. Sometimes disaster will strike with no notice and no fault. This potential disaster, this uncertainty, this certainty of uncertainty is known as risk.

This post will outline some potential risks of doing business and more specifically the typical horizons of which risk tends to rise.

A key to risk management is to catch problems early. The best way to do this is to be looking for the problem before the problem even exists.

Below are seven common horizons where risk in known to arise.

Seven Potential Risks of Doing Business

1) Industry Demand

Perhaps this is the worst. Nothing is worst than trying to sell that of which no one wants to buy. Depending on your product and industry you may be likely to encounter a fluctuation in market demand (not in your favor). The best way to hedge this risk is to use one or a combination of three risk adverse safeguards prior to the strike of a lacking market demand.

a) Have savings and a cost cutting plan for the occasion and wait out the storm. Extra financing does not hurt.
b) Diversify your revenue and have plenty of sources
c) Tweak your revenue streams to yield a residual income

2) Outside Regulation from Authorities

Nothing sucks more then the government stepping in and suddenly squashing your means of making a living. The only way to beat them is to join them (aka getting into politics some how and beating them at their own game.)

3) Fluctuating Demographics and Populations

This can creep up on you if you have been in business for a long time. If the surrounding market population steadily gets older, or changes some how with out replenishing the "meat and potatoes" of your target market then you better move or find a new business.

4) Competition of the Third Kind

Everyone in business typically has a good nose for the direct competition. However if you are the unfortunate soul to encounter a new competitive technology that you have never seen before because ... well... they never existed before (aka new competitive technology) then you can be in for a very rude and humbling experience.

For example = NY Times meet my friend she is called "the Internet".

5) Long Term Supply Disruption

If you rely on something that suddenly goes out of style or perhaps worst is suddenly used for something totally different and totally more profitable thus increasing your costs out of your league then you are gonna have to figure out how to do what ever is smarter then what you were doing.

6) Loss of Competitive Edge such as Patent

Did you invent something? Time sure does fly huh?

7) Legally Taken to the Cleaners

Lawyers suck. No doubt about it. If one sees a way to gut you for everything you got expect a bill for at least twice that. This may be the worst and most infuriating.

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