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Understanding Risk Taking as Entrepreneur

Legit risk takers will always rule the world. Risk takers will employ non-risk takers as staff. It is always better to try and fail than not trying. The difference between any two business man is the risk factor. You cannot beat or grow more than the risk taker. It is advisable that you take strategic, analytical and calculative risk to avoid regrets. The biggest risk is not taking any risk (Mark Zuckerberg). Life is all about taking risks. If you never take a risk, you will never achieve your dreams.

Take Risks

If you win, you will be happy; If you lose, you will be wise.

If you want it go for it. Take a risk. Don’t always play it safe or you will die wondering.

You are got a new story to write. And it looks nothing like your past. You never too old to find your passion. Keep looking.

The person who risk nothing does nothing. Do one thing everyday that scares you. Opportunity does not come gift wrapped, you most take risks. The things you regret most in life are the Risks you didn’t take.

WHAT IS RISK?

Most times a room can be very dark and scary in your family house; everyone will be waiting for light before moving into the room, there is someone in your family that will be willing to move into the dark room such a person is a risk taker.

Eskimos is a community with plenty ice. It makes no sense taking ice to the Eskimos, but risk takers will dare it.

The government of Nigeria has approved the construction of 17 private refineries since 10 years ago, but the operators are waiting for healthy business environment by passing the petroleum industry Bill (P. I. B) into law before construction. Against all odds another operator Aliko Dangote is building the biggest refinery of 650,000 barrels in a country that other operators saw threat, he saw opportunity. The threats of another business man can be a great great opportunity to another business man in the same environment. Most of our fears are not real, they are shadows, stand up and take the legitimate business risk.

NOT RISK, BUT MADNES 
1.   A blind man driving a car on the express. 
Example: "Investing with with a well-known crook "
2.   Flying from a ten-story building.
Example: " Investing with a bankrupt firm or person. 
Example: Investing with a bankrupt firm or person 
3.    Travelling on a trip without address. 
Example : Investing in an unacknowledged venture. 
Risk is the potential of gaining or losing something of value. 
A situation involving exposure to danger. 
Possibility, Chance, Probability, Likelihood, Danger,  Peril,  Threat, Menace, Fear.

Definition of Risk

1. Risk is a chance of losses.
2. Risk is the possibility of unfortune occurrence.
3. Unforeseen events, eventuality
4. Unpredictability
5. Occurrence of economic loss.
6. Probability of some happening that is unwanted and unavoidable.

CONCEPT OF RISK

1. Risk is a situation in which some kind of loss is possible. Risk is a part of life.
2. Insurance protects against risk, in the sense that people who buy insurance are financially compensated in case of loss.
3. Purchasing insurance does not remove risk, it merely provides compensation for the loss and spreads the cost of sharing the risk.

What is Business Risk?

MEANING OF BUSINESS RISK

i. inadequate profit or losses due to uncertainties

ii. It cause fail of business

iii Arise due to internal risks and external risks.

iv. Internal Risk: It arise from Human, Technological, Physical factors.

4. External Risk, economic, Natural, Political factors.

Business Risk VS Financial Risk

Business Risk: Depends on business factors such as competition product liability, and operating leverage.

Financial Risk : Depends only on the types of securities issued; more debt, more financial risk. Concentrate business risk on stockholders.

ANALYZING THE HEART OF A RISK TAKER

The Spirit of the Risk Taker

a. The heart of the risk taker

b. The mind of the risk taker

c. The guts of the risk taker

Those that have the heart of a risk taker will never use the hypothetical question of “what if”

i. What if I fail?

ii. What if I am unable to pay back

iii. What if I am arrested?

iv. What if I am unable to sell?

v. What if my product is not accepted?

vi. What if customer don’t come?

They will always say

i. I will succeed

ii. I will make

iii. I will not be a failure

iv. I will make profit

v. I am a great man

The primary bold mindset

Those with the spirit of a risk taker have a positive mindset and their thinking and words are “when I”

i. When I finish selling

ii. When I make profit

iii. When I clear my debt

iv. When I succeed

v. When I, When I, When I

The secondary bold mindset

Those with the spirit of a risk taker will eventually have a mind shift from primary to secondary with thinking and words such as “I will “

i. I will pay back

ii. I will clear the loan

iii. I will expand the business

iv. I will sell much today

Ironically , our thinking controls our emotions, visions, plans, activities and investment etc. This is further backed by the bible passage “As a man thinketh in his heart, so he is” (Proverbs 32:7)

What are you thinking right now? It is profitable to have thought as:

i. I am a growing businessman

ii. I am a mega businessman

iii. I am an international businessman

iv. I am a multi-millionaire

v. I am an employer of labour, thousand will work for me, I will never work for any firm.

ANALOGIES OF THE SPIRIT OF A RISK TAKER

1. ordinarily, a hen cannot fight an eagle, but the hen goes after the eagle that attacks her chick.
2. Ordinarily, elephant is bigger than a lion, but the lion fights and defeat the giant elephant. The size of elephant does not dread a lion as put up a fight.
3. Ordinarily, the tumultuous nature of the wind or plane crashed cannot stop pilots from continuously flying. Pilots fly towards the storm, in storm and land safely at last.

SYSTEMATIC APPROACH TO RISK

To carry out a risk analysis, follow these steps:

1. Identify Threats

The first step in Risk Analysis is to identify the existing and possible threats that you might face. These can come from many different sources.

2. Estimate Risk

Once you have identified the threats you’re facing, you need to calculate out both the likelihood of these threats being realized, and their possible impact.

One way of doing this is to make your best estimate of the probability of the event occurring, and then to multiply this by the amount it will cost you to set things right if it happens.

3. Avoid the Risk

In some cases, you may want to avoid the risk altogether. This could mean not getting involved in a business venture, passing on a project, or skipping a high-risk activity. This is a good option when taking the risk involves no advantage to your organization, or when the cost of addressing the effects is not worthwhile.

Remember that when you avoid a potential risk entirely, you might miss out on an opportunity. Conduct a “What If ?” Analysis to explore your options when making your decision.

4. Share the Risk

You could also opt to share the risk – and the potential gain – with other people, teams, organizations, or third parties.

For instance, you share risk when you insure your office building and your inventory with a third-party insurance company, or when you partner with another organization in a joint product development initiative.

5. Accept the Risk

Your last option is to accept the risk. This option is usually best when there’s nothing you can do to prevent or mitigate a risk, when the potential loss is less than the cost of insuring against the risk, or when the potential gain is worth accepting the risk.

For example, you might accept the risk of a project launching late if the potential sales will still cover your cost.

6. Control the Risk

If you choose to accept the risk, there are a number of ways in which you can reduce its impact.

Business Experiments are an effective way to reduce risk. They involve rolling out the high-risk activity but on a small scale, and in a controlled way. You can use experiments to observe where problem occur, and you introduce the activity on a larger scale.

BENEFITS OF TAKING RISKS

1. You’re driven to learn new skills
2. Embracing risk helps you to overcome the fear of failure
3. It empowers you to break through self-imposed limits
4. You become more creative
5. It helps you clearly define what you really want
6. You break free from ‘average’
7. You uncover unforeseen opportunities
8. You self-confidence grows
9. You learn to trust more, because you have to
10. You don’t achieve your dreams by playing it safe

REASONS WHY RISK-TAKING LEADS TO SUCCESS

1. Great, otherwise unforeseen opportunities often come from risk-taking

We tend to view risk-taking negatively, often regarding it as dangerous and even unwise. But while some risks certainly don’t pay off, it’s important to remember that some do

2. Taking risks shows confidence and helps you stand out

Taking a risk is also a great opportunity to stand out and to present yourself as a leader, not a follower satisfied with the status quo.

3. We learn from risks-and those lessons may lead us on an important, new path

But beyond the external opportunities and recognition risk-taking can bring, it also provides an opportunity for internal growth. I think I’ve always felt that there was something quite exciting about taking risks. And there’s a great saying, actually, that you only learn when you are at risk and I’m fascinated by both risk and learning, so that has led me to take jobs that people would think “you can’t do that, that’s just impossible.” No it won’t be.

4. Success won’t fall in your lap – you have to pursue it

But beyond being personally or professionally beneficial, taking risks may be a necesary step in actively pursuing success.

5. You don’t achieve your dreams by playing it safe.

Risk-taking won’t only potentially benefit the career-path you’re already on – it may actually open you up to a world of possibilities you have yet to consider .

6. Embracing Risk-taking helps you overcome a fear of failure

Young people are a little more risk-averse because when ever you launch something there’s a big chance it’s not going to work. And we have a bigger problem with failure.

7. Taking a risk doesn’t mean doing so haphazardly

While risk taking can clearly be personally and professionally beneficial, it doesn’t occur in a vacuum, eithere. People doesn’t benefit from risk without preparing to take them and educating themselves on the possible fallout.

RISK MANAGEMENT

1. Risk Avoidance

This includes not performing an activity that could carry risk.

2. Risk Reduction

Risk reduction or “optimization” involving reducing the severity of the loss or the likelihood of the loss from occurring.

3. Risk Sharing

Briefly defined as “sharing with another party the burden of loss or the benefit of gain, from a risk, and the measures to reduce a risk.

4. Risk Retention

Involves accepting the loss, or benefit of gain, from a risk when it occurs.

5. Risk Management Plan

Select appropriate controls or countermeasures to measure each risk. Risk mitigation needs to be approved by the appropriate level of management.

6. Implementation

Implementation follows all of the planned methods for mitigating the effect of the risks.

7. Review and Evaluation of the Plan

Initial risk management plans will never be perfect. Practice, experience, and actual loss results will necessitate changes in the plan and contribute information to allow possible different decisions to be made in dealing with the risks being faced.

8. Limitations

Prioritizing the risk management processes too highly could keep an organization from ever completing a project or even getting started. This is especially true if other work is suspended until the risk management process in considered complete.

RISK AND TYPES OF RISKS:

Risk can be referred as the chances of having an unexpected or negative outcome. Any action or activity that leads to loss of any type can be termed as risk. There are different types of risks that a firm might face and needs to overcome. Widely, risks can be classified into three types: Business Risk, Non-Business Risk and Financial Risk.

1. Business Risk

These types of risks are taken by business enterprises themselves in order to maximize shareholder valve and profits. As a

for example : Companies undertake high cost risks know marketing to launch new product in order to gain higher sales.

2. Non-Business

these types of risks are not under the control of firm. Risks that arise out of political and economic imbalances can be termed as non-business risk.

3. Financial Risk

Financial risk as the term suggests is the risk that involves financial loss to firms. Financial risk generally arises due to instability and losses in the financial market caused by movements in stock prices , currencies, interest rates and more.

TYPES OF FINANCIAL RISKS

Financial risk is one of the high-priority risk types for every business. Financial risk is caused due to market movements and market movements can include host of factors.

1. Market Risk

This type of risk arises due to movement in prices of financial instrument. Market risk can be classified as Directional Risk and Non – Directional Risk. Directional risk is caused due to movement in stock price, interest rates and more. Non – Directional risk on the other hand can be volatility risk.

2. Credit Risk

This type of risk arises when one fails to fulfill their obligations towards theie counter parties. Credit risk can be classified into sovereign Risk and Settlement Risk. Sovereign risk usually arises due to difficult foreign exchange policies. Settlement risk on the other hand arises when one party makes the payment while the other party fails to fulfill the obligations.

3. Liquidity Risk

This type of risk arises out of inability to execute transactions. Liquidity risk can be classified into Asset Liquidity Risk and Funding Liquidity Risk. Asset Liquidity risk arises either due to insufficient buyers or insufficient sellers against sell orders and buy orders respectively.

4. Operational Risk

This type of risk arises out of operational failures such as mismanagement or technical failures. Operational risk can be classified into Fraud Risk and Model Risk. Fraud risk arises due to lack of controls and Model risk due to incorrect model application.

5. Legal Risk

This type of financial risk arises out of legal constraints such as lawsuits. Whenever a company needs to face financial loses out of legal proceedings, or is legal risk.