Risk and reward in business

Taking risks is very common in any business. In order to stay ahead of the competition and make use of new technologies, businesses must invest time and money into new ideas. This will always carry some sort of risk as these new ideas may not work out in the way that was intended. Weighing up the risk of a new venture or idea alongside the potential reward will help a business to decide what it should do next.

Positives

All of the potential positives should be analysed when making a decision in a business. Possible rewards when taking a risk can come in many different ways and each should be calculated to ensure that taking a risk is worth it. Possible rewards could include:

• Increased sales
• Decreased costs
• Long-term security of the business
• Higher staff morale
• Higher profits
• Financial independence

Each possible positive should be given a monetary value, and forecasts can be worked out for how the business will improve should the risk pay off. By doing this, a business will be able to clearly show what it stands to gain should the new method work.

Negatives

When taking a risk, things can go badly wrong. Putting money, time and other resources that the business has into something new can backfire and many businesses have seen catastrophic results when this happens. If a business takes a risk that does not work out it could not only lose money but the entire future of the company could be put in danger. Some of the main risks that are present when making changes in a business are:

• A loss of money
• A loss of time
• Key staff members being unhappy
• Loss of reputation in the marketplace
• Destabilisation of the business for the future

Risks, as long as they are correctly calculated, can be a good thing for a business. Usually the larger the risk a business takes, the bigger the potential rewards are. Taking risks is a key element for any entrepreneur but you need to know which ones are sensible risks and which ones are not.

Carefully planning a risk that is taken and spending time to find out all of the potential hazards is key. Without this plan, unexpected elements could soon begin to arise that mean the risk taken was not justified. By thinking carefully about the size of potential rewards and the chances of issues arising, the owners of a business can decide if the risk is worth taking or not.

The role of business enterprise

Business enterprise is closely linked to business acumen, which is the ideals and drive that an entrepreneur must have in order to be successful. People launch and operate businesses for a variety of different reasons. However, all businesses need someone in the driving seat who is able to provide direction and take risks in order to get a new venture off the ground.

Businesses can be started for a variety of different reasons such as:

• To produce goods and services – almost every business offers goods or services of some description. Doing this will cater for the needs or wants of customers and will offer something to the public that they are willing to pay for. The range of goods and services that a business offers can be vast, but each company needs to ensure it does this in an organised manner to ensure success
• To meet the needs of customers – without customers, businesses simply wouldn’t be able to operate. Customers are vital for any business venture and must be offered something that they either want or need at a price that is fair in order to build a good reputation
• To add value – adding value to goods and services is done through a range of different methods. This could be through branding, which helps a business to stand out from the crowd and attract new customers. Other methods include offering quality goods and unique selling points that are not available elsewhere. This will ensure that customers return to the business in the future as they are getting a deal that is fair for a product they have a use for.

Added value

As we have just mentioned above, adding value can take a number of different forms. Added value is defined as an increase in worth for a product that a business offers. By adding value to a product, a business is able to charge a customer more than other companies and ultimately make more money from every sale. This can be done through branding and marketing which will build a strong reputation that customers trust. Making a product distinctive will also help a business to add value as the product or service will only be available from the business in question. An increase in quality or service can also add value as this will make what is on offer better and increase the chances of customers returning. Convenience is a great way to add value to a product as well. By making it easy to deal with a business and offering goods or services in an area that is accessible, customers will be saved any hassle and be prepared to pay more money.

The role of entrepreneurship

An entrepreneur is someone who works to build a new company and takes risks that they hope will pay off. In order to get a business off the ground and making money, a blend of different skills and attributes are required. These include the following:

• Seeing opportunities and taking risks – an entrepreneur needs to be forward thinking and able to spot gaps in markets. Doing this will give rise to a new business venture that offers goods or services to people who are prepared to pay money for them. Spotting these opportunities is not the end. Entrepreneurs must be prepared to take a risk by starting a new venture (which can be expensive and very time-consuming) in order to make it work.
• Planning activities – being able to effectively plan in the early stages of a business is very important. Without planning, a business is likely to run into issues early on and be unable to overcome these successfully. Planning what a business will offer, how it will deal with customers, the unique selling points it has and how finances will be used are only a few of the areas that an entrepreneur must look at.
• Organisation – being able to organise the business in terms of how resources will be used will be the job of the entrepreneur. Doing this effectively requires you to understand the types of resources that are available and where these should be used to give the best possible outcome.
• Determination and energy ¬– a new business can be very hard work so, when starting a new venture, a person needs to be very determined to succeed. This determination needs to be teamed with energy and passion for the project which will drive the entrepreneur to work very hard with little return seen immediately. In the first year of operating, the majority of businesses lose money. This is the main reason why, in the early stages of a new company, being fiercely determined and never giving up is so important.