You know what is the only relevant difference between a person who is an entrepreneur and one who would you prefer to be an employee hired by an organization? If you answered, that is the will of take risks, you got it right.
No other characteristics whatsoever, such as intelligence, skill, dedication, interpersonal skills is as important as the willingness to assume risks, in the difference in profile between entrepreneur and employee.
But note that willingness to take risk is very different from the ability to take risk. IT’S precisely because of this, that many entrepreneurs achieve the deserved success and many have their plans frustrated. In the business environment it is not enough to want, it is not enough to have good intentions.
IT’S I need to know how to assess the risk of a project, whether new or in progress. But in a new business, understanding and measuring risk is even more critical. Certainly for the dream to come true it takes a lot of effort, but the effort must be compatible with the level of risk, that is, with the chances of success.
This rule applies to all types of effort such as invested capital or time devoted to the activity. Little effort and little risk, it’s very rare, almost an illusion. Low effort and high risk, it’s way to wasted time and frustration.
The normal, whether the old or the new normal, is we find businesses that demand a lot of effort, and among these, those that are aligned at a small risk level are those with the greatest chance of success. And those that are associated with a high level of risk must be carefully evaluated and monitored.
So, the key recommendation for successfully starting a business is to measure the level of risk. But risk is not something physical that can be measured in size, distance, weight, color, etc. So, how to measure if it is abstract? What is the risk rule? There are 3 approaches.
The first for financial assets such as stocks, government bonds, the risk measurement is made by statistical, with the standard deviation of earnings over time. The second approach refers to the case of large companies, revenues above R$ 20 million / year, it is used the beta (indicator of a stock’s price volatility). But, these first two is not ours case here.
We want to analyze the risk of starting a small business. In this case, unfortunately there is no magic formula. What we have for practical use in the market is the methodology called SWOT Analysis. In Portuguese terminology I receive the name FOFA (Forças, Opportunities, Weaknesses and Threats).
Let’s take a practical example: João wants to open a small chain of 3 pharmacies. what factors that characterize the risk of being, or not, successful?
Strengths: these are internal factors (under the responsibility of the entrepreneur) that contribute to success, as commercial point and financial resources. Weaknesses: represent the opposite case as the brand. Opportunities: these are external conditions (which we do not control), such as the large population elderly woman who demands medication. Threats: it is the opposite case as the high level of competition. We then have four pairs to frame the risk level.
Then, after careful analysis, João will be able to classify his project in one of these pairs, and with relative risk assessment:
Note that in the market we find situations where a given factor, for example, the brand, is a strong factor for one company (tradition, recognition by consumers) and for another to be a factor weak (brand new, unknown).
Thus, there is not yet, and it may take a while to have, an exact and infallible “ruler” for measure the risk of opening a business, but rational analysis, with little emotion, and armed with information in the SWOT methodology, can serve as criteria for a mapping of risks, and opportunities, from the terrain ahead.