The world of finance has seen a good deal of business daredevils who have built their fortune taking significant risks to much success. Bill Gates shaped Microsoft Corporation (NASDAQ:MSFT) by quitting college and betting all on his unique PC vision, while Henry Ford dramatically cut prices to meet the demand of his popular model T.
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As these stories have reached iconic status, business people start to wonder what is risk’s sweet spot and how to be resilient enough to overcome adversity and thrive.
There are thousands of unknown entrepreneurs who risked it all and lost it all. The majority of those risk-takers ended up quitting for good, never to be heard from again.
But to answer the question of how to be risky and successful, the answer lies somewhere in the middle. While it is true that a few business owners have achieved success by taking extreme risks and “betting the farm” on their projects, those who truly succeed learn to manage risk strategically.
We talked to African businessman and SAVENDA Group CEO Clever Mpoha about the keys to a successful risk management strategy.
Tell Us About SAVENDA Group And What Your Risk Management Motto Is...
SAVENDA Group is a multinational conglomerate founded in my native Zambia, which I launched with $1,000 and today is a $300 million annual supply management and logistics firm. We have subsequently diversified into a number of other sectors like agriculture, defense, manufacturing, and print.
The company is a product of good risk management along with some considerable risk-taking, balanced by a plan to manage risk and a powerful determination to succeed no matter what.
I firmly believe entrepreneurship rewards risk-takers. If you are one of those people who are afraid of losing money, then the business is not for you. We took a lot of risks along the way to build the enterprise we have today.
How Do You Define Risk Management And Which Are The Fundamentals?
Risk management is a process that helps entrepreneurs and business people evaluate all the risks associated with an investment. Further, it prompts a responsive contingency plan that can best predict and react to all possible outcomes.
There are three essential aspects of an effective risk management strategy: Risk assessment, risk evaluation, and risk response.
What Should Investors Consider When Assessing Risks?
To assess risk, investors should ask themselves the following questions: Will we be able to solve problems in our community? Will the market accept our product or service? How steep is the competition in this field? If there is competition, how will we counter it?
This is absolutely essential. Further, they should gain awareness of the budget to achieve market penetration and make their products known within the consumer base; also, the amount of money to cover unplanned or unforeseen problems that could crop up and derail their effort.
Once Risk Assessment Is Done, What Is The Next Step?
Anyone who has satisfyingly covered the risk assessment process should also define
the level of their “risk appetite” for their business. In other words, how much risk they are willing to deal with when pursuing their goals, before any action is taken to reduce such risk.
Successful risk takers are short to identify the likelihood of a particular risk. For instance, how likely a crash of the markets is, or how probable the current supply chain issues are going to affect their specific business –these are unexpected situations that can hurt any investment.
The impact and timeframe of such risks are also absolutely essential as to determining the quantifiable losses during a certain event, and for how long is the company going to be affected. All these factors help investors define how to react and identify potential opportunities.
How Are Investors Expected To React To Risk In The Management Process?
There are many ways a company can respond after the risk assessment and evaluation stages of the risk management plan. If an identified risk is likely to outweigh our short-term and long-term benefits, the first option is to avoid the risk altogether.
Besides avoiding risks, some can be mitigated by creating an effective control environment.
Accepting risks is also part of the process as it is inevitable that some risks must be accepted. The fact is, there will be some level of risk for just every new business activity involving the investment of money and resources.
One must simply accept risks –but one should also build in contingency plans that will soften the potential fallout of a risk gone bad.
Transferring risks to a third party is also part of the risk response process. The most obvious is to buy insurance for a particular situation whenever possible, as loss claims, property ownership, and human resource factors can be covered by insurance.
Another transfer example might be when a company chooses to use lease contracts to cover its transportation needs –That avoids the risk of the depreciation associated with vehicular assets.
Finally, dealing with risks involves not placing all the eggs in one basket. It’s common for farmers to grow a variety of crops, rather than place their bet on one crop for the growing season. If the wheat fails, maybe the soybeans will thrive and so forth.