BizAims

No matter the size of your business you may face big risks that will have a great financial and liability impact on the enterprise and on your personally. You cannot eliminate all the risks your business may face, but you can minimize the probability of their occurrence or reduce the impact they have on your enterprise. For doing so, you have to evaluate all the specific risks your business involves, and work out a risk management program that will help you either minimize the impact or transfer risk liability to third parties. You may also think of adjusting your small business insurance to cover exactly the risks your business is subjected to. Find out more about risk management from reading through the articles we have compiled on the subject. Be in control of your risks by knowing more!

I.     How to Reduce Business Risk (by Shanika Chapman)

II.    Using Open Source to Reduce Business Risk (by Paul Murphy)

III.  The Risks of Starting a Business (by Isabel Isidro)

IV.  5 Rules to Reduce Risk When Starting a Business in the Other 8 Hours (by Robert Pagliarini)

I. How to Reduce Business Risk (by Shanika Chapman)

When it comes to starting a business, risk is unavoidable. Even with the most thorough market research, there is no guarantee that your product or service will be a success. Fortunately, there are a number of things you can do to help minimize business risk, both during start-up and throughout your company's life.

Instructions:

1)      Conduct a market analysis. Before starting your business, analyze current and future trends in the market you intend to sell in. Analyze similar businesses or products that have failed and succeeded. Write down how you intend to stand out. Research your target audience and determine how you will meet their needs.

2)      Create a business plan that includes your goals, obstacles, market analysis, financial analysis and key personnel. This will give your business a road map, help you to avoid potential pitfalls, price and market your product, and help keep you focused on the mission. Use conservative figures when determining profit margins.

3)      Have a meeting that includes any stakeholders and employees to identify potential risks, such as project delays, disasters and market fluctuations. During these meetings, establish risk mitigation as well as contingency plans to address all parties' concerns.

4)      Purchase insurance. This may include property and business liability, commercial auto insurance and worker's compensation insurance. Research each type of insurance, making sure that you fully understand what each type does and does not cover. Seek legal advice if necessary.

5)      Seek advice from peers and family members that you trust and respect. Seek out individuals who run similar businesses and ask them for advice. Visit the SCORE website (see Resources) to connect with business advisors in your area.

6)      Employ excellent customer service and the utmost professionalism when dealing with your suppliers. Doing so will help you build strong relationships and make you eligible for getting better prices and being able to purchase smaller amounts of inventory, reducing the risk of over-purchasing. (Written by Shanika Chapman, ehow.com)

II. Using Open Source to Reduce Business Risk (by Paul Murphy)

Everything considered you’d expect this blog entry to be about Sun’s nearly miraculous escape from IBM and its future as an employee owned business - but it’s not, because I think it’s too early to tell just how much damage IBM managed to inflict and only the sheer viciousness of the personal attacks now being made on Jonathan Schwartz and other key Sun players supports the idea that Southeastern has played its last big card, and lost.

What I’d like to talk about instead is using open source to protect your IT operation from some of the third party risks attendant on the current recession/depression.

The proposition is that if you spend enough on licensing and support for proprietary software that could be replaced by open source products that not paying those fees would let you hire and retain at least two open source developers, then doing so makes sense because it reduces operational risk while increasing downstream flexibility.

Basically, if you’re paying some commercial developer a couple of salaries a year to maintain and support a product, then you’re really paying for his development infrastructure: access to source, access to feedback from multiple users, and access to knowledgeable development staff - and because joining the world wide open source community and hiring a couple of developers gives you those same benefits plus better control on how your dollars get spent, you’re better off doing it.

Suppose, for example, that your business relies on Sybase ASE - and you pay them several hundred thousand a year in licensing and support. That’s a great product: it reliably does what it’s supposed to do - but if you hire a couple of committed developers for either MySQL or PostGresSQL they can switch you to their product without much difficulty or transition risk and both will provide the same RDBMS services on the same hardware at about the same level of short term risk. So what changes?

First, you remove a single point of failure from your operation. Sybase is a nice company that makes a pretty good product - but they’re in the weathermen’s cross hairs: a successful part of the American economy and in California to boot. In contrast the MySQL and PostGres communities are world wide - not by any means immune to what’s happening in the economy, but as geographically and economically diversified as it’s possible to get.

Second, you get the same access to skills, source code, and user feedback development management at Sysbase gets - plus your people can learn what’s unique about your business, contribute beyond the RDBMS agenda, and be held responsible when things go wrong at 3AM.

And, third, you get a significant reduction in barriers to change: other open source adoption becomes easier; you can re-allocate developer time as needed; running two or more open source RDBMS packages costs about the same as running one; and the transition from a proprietory product to an open source one tends to be harder than moving back and much harder than moving between open source packages.

Notice, please, that I’m just using Sybase and its major open source competitors here as an example, not predicting financial or other problems at Sybase - the argument is applicable pretty much across the board for foundation products from LAMP to Java and the latest Sun compilers, and largely applicable (although with more reservations) to applications from OpenOffice to Drupal and Cocoon.

So what’s the bottom line? if you’re big enough to make it pay, then bringing in open source development expertise connecting your operation to the world wide open source community gives you comparable or better software, better control, more downstream flexibility, and reduced risks - all pretty good things, right? (Written by Paul Murphy, zdnet.com)

III. The Risks of Starting a Business (by Isabel Isidro)

One of the major fears of starting a business is the risk involved. What would happen if you invest your money in a business, while potentially profitable, offers no certainty of success? What if the business fails?

Business is risk. There’s not one business that can provide a business owner with 100% success guarantee.

If you are hesitant or scared to start a business because of its perceived risk, I suggest you evaluate the level of risk of the business and determine whether you want to take on that risk. In the risk management field, this is called “risk appetite.” The most successful entrepreneurs are those who are able to face the risks and overcome them.

Make a list of the potential risks of the business. Understanding how the nature of your business affects risk is important in determining where to apply resources in order to help mitigate those risks. Recognizing areas of business risk will help you to optimize allocation of your resources.

For example, if you want to start a hair salon business, your risks may include (though not exhaustive):

    * quality of location that you can get, which can affect your level of foot traffic and even the insurance you can get for the business

    * potential for fire given the flammable nature of most hair products

    * electrical safety due to the number of electrical appliances used in the business

    * top hair stylists may leave, bringing with them your clients

Then indicate the level of probability that the risk will occur:

    * Is the likelihood that this risk will happen HIGH?

    * Is the likelihood that this risk will happen MEDIUM

    * Is the likelihood that this risk will happen LOW

Finalize the list with the steps you can do to manage and minimize the risk.

This type of assessment can help you determine if the risks are well worth it — and if you have the resources, skills and knowledge to actually overcome the risks.

If you are comfortable with the level of risk, especially when compared to the returns, then invest in the business. If not, then look for a safer business for you to invest or work with someone you think is better equipped to handle the risks of the business. Or maybe consider that entrepreneurship is not for you and you may be better suited for something else. (Written by Isabel Isidro, powerhomebiz.com)

IV. 5 Rules to Reduce Risk When Starting a Business in the Other 8 Hours (by Robert Pagliarini)

I have a metal paperweight on my desk with the inscription, “What would you do if you could not fail?” It’s a nice ornament with a feel good message, but it’s completely wrong and dangerous. Anybody can fail at anything. If you start a new venture without first thinking about and limiting risks, you can put your finances — and worse yet — your relationships in jeopardy. What starts as a way to build a dream life during the other 8 hours, become your own boss, or make a fortune can turn into a nightmare if you don’t limit your risk.

A better and more useful message would be, “What would you do if it didn’t matter if you failed?” To me, that’s much more realistic and powerful. Instead of taking a risk that could end in a cataclysmic strikeout, your goal is to limit the risk of financial catastrophe. This means containing projects so that a swing and a miss doesn’t have the potential to ruin your life.

Here are 5 rules to reduce risk when starting a business in the other 8 hours:

    * Get free help. You should enlist the support of others. Find service partners willing to invest their time a piece of the venture’s future income instead of upfront cash. The same person who would laugh you out of their office if you asked them for a $2,500 investment may gladly trade $2,500 of their services for a small piece of ownership in a promising new venture. Why? Like you, most people are looking for an opportunity to get ahead without risking too much. If someone can invest a little of their time with the hopes of making a huge return, they may jump at the chance.

    * Make small bets. In the investing world, everyone talks about risk tolerance — a measure that determines how psychologically comfortable you are with the possibility of losing money. This is good to know, but more critical is knowing your risk capacity — that is, how much money can you afford to lose without it destroying your finances and your ability to pay your rent? Start small and start slowly. Immediately committing thousands of dollars to an idea is as ridiculous as walking up to a girl you’ve never met and asking her to marry you. You need to put a little out there and get a little back. Then you can put a little more out there and hopefully get a little more back.

    * Negotiate fiercely. You must be relentless about getting what you need. You don’t have the luxury of a six-figure budget. You’ve got to get your ventures up and running as cheaply as you can. One way to minimize risk is to negotiate everything. Don’t accept anything as is. Negotiate discounts, concessions, bonuses, terms, etc. It will feel awkward at first, but keep practicing.

    * Limit liability. If you are producing a product or providing a service that could lead you to get sued, you must protect yourself against lawsuits by incorporating and by having the proper liability insurance. Don’t risk financial disaster by not shielding your personal assets from your business assets.

    * Keep your day job (at least for now). It’s important to have that steady and predictable income during the day while you swing for the fences at night.

Unless you’re sports-challenged, you know if you get three strikes you’re out. But what if that weren’t the case? What if you could swing and swing and swing without ever striking out? A swing and a miss is not a failure when you follow these rules. A swing is simply one swing closer to a hit. (Written by Robert Pagliarini, moneywatch.bnet.com)