Editor’s note: The post below is from Brian Flax, a freelance writer based outside of the Washington, D.C., area.
Success doesn’t come without taking risks, whether you’re investing money in the stock market or creating your own startup business venture. It’s important to find a balance between being too cautious with your business decisions and taking too many risks. While it’s good to take risks, putting all your money in one pot could lead to failure, so making carefully calculated business decisions should be your number one priority. If you’re too cautious, your business many never grow to its full potential. Take too many risks, and you could end up closing shop before you’ve even had a chance to start.
Let’s take a look at how to reach a good balance between being too cautious with your startup venture, and taking too many risks.
Let’s start by looking at Peter Briger, a Principal and Co-Chairman of the Board of Directors of Fortress Investment Group, a company that provides financial services to large-scale development projects. Briger must take calculated risks when providing financing to developers, as the wrong investment could mean a huge financial loss to his company. In a quote from an Institutional Investor article:
“When Briger’s group takes risks, it is cautious. Take its dealings with billionaire property developer Harry Macklowe. In February 2007, at almost the very top of the real estate market, Macklowe decided to roll the dice by buying a $6.8 billion portfolio consisting of seven Manhattan skyscrapers. To do so, he needed a loan, and he needed it fast. He turned to Briger. Fortress lent Macklowe $1.2 billion, but Briger insisted that he give a personal guarantee, unusual at the time, meaning that Macklowe’s own multibillion-dollar fortune was on the line, as was his greatest asset: the General Motors Building, which occupies an entire block on New York’s Fifth Avenue.”
To aid Briger in limiting his losses if the investment failed to meet expectations, Fortress Investment Group required collateral, or a personal guarantee, so it could recoup some or all of the money it provided in financing to Harry Macklowe. Peter Briger took a calculated risk and chose to limit the losses he could incur if the project failed and the $1.2 billion dollar loan couldn’t be repaid.
Assessing Your Numbers
When you’re assessing your options for your startup business’s growth, it’s important to take into consideration turnover, staff numbers, market share, profits, and sales. In reality, your profits and sales should provide a good indication of whether or not you should consider expanding or taking on additional responsibilities, products, or services.
Look at your competition and the market as a whole. If your numbers indicate growth, it could be a good time to take a calculated risk. Don’t go all in just because your numbers look impressive on paper. If you bite off more than you can chew, you could end up sinking even when things look good.
Common Startup Mistakes
Keep an eye on the amount of money your startup is spending. One of the biggest mistakes startups make is hiring too many people too soon. In addition to slowing your business down, it also costs a lot to bring people on, train, and retain them. If you can avoid hiring people in the initial phase of a startup venture, do it. If you can’t, offer new hires equity rather than salary, which will weed out those who just want to collect a paycheck.
Ensure your idea for a startup is a new and innovative idea and not just another feature that can be used by another company. Coming up with an original idea is not easy, but it can be done. Find a problem you can solve, and a big enough market that requires a solution. Don’t start until you know you have a solid idea, and act quickly. Most new startups fail because they don’t move fast enough responding to the needs of its customers. You can’t expect things to work out if you don’t put in the effort from the beginning. If this means working long hours seven days a week, successful entrepreneurs will put in the time, and those that don’t will fail.
Stop Being Paranoid
Just as taking too many risks can kill a business, so can being too cautious or paranoid. There’s no reward if you don’t take risks, and if you just sit back and do nothing, your company will never make money. You need to act quickly, pitch your idea to people who can help bring in money and finance your business, and don’t be paranoid about others stealing your idea. It’s not the idea that will make you money, but the way you choose to execute and get people to rally around you to make things happen.
There’s no guidebook that tells you which risks you should take and which ones you should avoid. You have to take calculated risks, meaning you’ve weighed your options and you understand what you’re putting on the line to make things happen. Before anything, you need to have a good idea. If you don’t believe it in, neither will anyone else.
Brian Flax is a freelance writer based outside of the Washington, D.C., area. He is experienced in a variety of topics, including education, technology, and business. Brian holds a master’s degree in education technology and a bachelor’s degree in entertainment business from Full Sail University.
Images courtesy of Stuart Miles and cooldesign / FreeDigitalPhotos.net