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Why Entrepreneurs Need To Slow Down Before Taking Risks

By Townes Haas   |    March 31, 2016   |    10:23 AM

We always hear that entrepreneurs are insane risk takers, but this doesn't mean they dive into situations without considering those risks. Here are the reasons entrepreneurs should make a deep assessment of business opportunities before taking action.

When you play with fire you might get burnt

When risk takers are not successful, the simple reason for this is that they leave too much to chance. This is why it is important to ascertain whether a start-up can truly flourish into a lucrative business. As the saying goes: 'failing to plan is planning to fail'. As an entrepreneur, to be successful, you need to take into account all the risks and potential problems associated with your new business. Then you should make careful plans to minimize these. This way the effort, time and capital you invest into your new venture will be worthwhile and your start-up will have the best chance of getting off the ground.

Weigh the risks

Any entrepreneur who has successfully launched a venture or two will advise you to weigh the risks versus the benefits before commencing anything. You need to know how you can best mitigate any risks before you implement your plan, otherwise you may lose it all. You should evaluate how much capital you can afford to lose, plus put everything in place so as to ensure you never exceed that figure. Well-known entrepreneurs always stick to the basic principles of risk management so that they can do everything to be certain that they stand to gain. You should look at business with a cautious gambler's eye, acknowledging that due to high uncertainty you need strong ground rules like: don't pay/bet more than what you can expect as a return, and don't pay/bet more than you can afford to lose.

The costs can be high and not just financially

Another reason why savvy entrepreneurs do not take unnecessary risks is that they know the cost will not only be monetary should things fail. Firstly, your professional reputation may be damaged. It may be hard for you to launch other businesses in the future should you make a real mess of things. Your personal reputation could suffer. Then there is opportunity cost. If you are spending all your time on A, you cannot be working on B simultaneously, when C could potentially be a far superior idea. Starting a new venture is a huge commitment in every way possible, demanding time, energy and money therefore relationships can get strained. It is stressful from the get-go but should the venture be a failure this could create even more stress. You would need to be a saint for that not to overflow into your relationships with your family and friends. You may also pay a high cost in terms of your health as well as mental well-being should things backfire. This is why wise entrepreneurs work hard to limit risks so as to avoid the high cost to every aspect of their lives. They look before they leap.