Small Business Risk Management


Many times a person wanting to start a business has no idea what risks to focus on when founding a new business venture. Each small business is different and each business founder has different experiences about what is truly important. Experience in dealing with risk helps the small business founder because he or she has some idea of what to expect. Larger firms have similar difficulty dealing with risks.

Experience is the single biggest quality a person can have to deal with risk effectively. Small business founders deal with risk most effectively as needed when it comes up. Unlike larger firms engaging in extensive planning, experience helps the small business entrepreneur effectively work through risks envisaged as important at a particular time.

Small business entrepreneurs expose themselves to uncertain conditions for which risk does not surface until trying to face these conditions. Milliken (1987) defined uncertainty, ”… as an individual’s inability to predict something accurately” (p. 136). Miliken distinguished uncertainty from risk by stating, unlike risk, an entrepreneur cannot plan for uncertain conditions.

McKelvie, Haynie, and Gustavsson (2009) explained uncertain conditions play a major role in entrepreneurial decision-making.  Experienced small business entrepreneurs address uncertain conditions through effectuation without any difference in the dislike of risk than any other person. Effectuation means taking small steps to try different approaches and limiting risk to each small trial. This technique allows the small business to focus on opportunities instead of extensive planning. This approach allows entrepreneurs to take action instead of letting uncertain conditions paralyze them (Read, Dew, Sarasvathy, Song, & Wiltbank, 2008).

Some general guidelines about dealing with different risks a small business entrepreneur might face include:

Gaining Market Acceptance. Gaining market acceptance is critical for survival. Successful small businesses deal with this sooner rather than later.

Attracting Key Management. Typically, a small business delays hiring key management until achieving a sustainable level. A firm can employ experts outside the firm until the time is right to find the right person.

Technological Changes. Again successful small businesses hold off in dealing with such changes until achieving a sustainable level. The firm can employ outside experts until achieving such levels.

Gaining Needed Licenses. Small business founders try to address needed licenses sooner rather than later. Licenses are necessary for the small business to make it to the next level.

Product Liability and Safety. Successful small business puts off dealing with such issues until they start to happen. Most small businesses do not expect facing such issues until they start to emerge (Harris, 2011).

If a small business entrepreneur has little experience he or she should have people with some experience in his or her corner to deal with uncertainty and risk management. Learn more.

References

Harris, J. P. (2011). Entrepreneurial success as determined by an evaluation of premarket entry risks. (D.B.A.University of Phoenix), University of Phoenix, United States — Arizona. Retrieved from http://search.proquest.com/docview/884183934?accountid=35812http://linksource.ebsco.com/linking.aspx?genre=article&issn=&volume=1&issue=&date=2011-01-01&spage=1&title=ProQuestDissertationsandTheses&atitle=Entrepreneurialsuccessasdeterminedbyanevaluationofpremarketentryrisks

McKelvie, A., Haynie, J. M., & Gustavsson, V. (2009). Unpacking the uncertainty construct: Implications for entrepreneurial action. Journal of Business Venturing, In Press, Corrected Proof, 1-20. doi: 10.1016/j.jbusvent.2009.10.004

Milliken, F. J. (1987). Three types of perceived uncertainty about the environment: State, effect, and response uncertainty. Academy of Management Review, 12(1), 133-143. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4306502&site=bsi-live

Read, S., Dew, N., Sarasvathy, S. D., Song, M., & Wiltbank, R. (2008). Marketing under uncertainty: The logic of an effectual approach Copenhagen Business School, 1-50. doi: 10.1016/j.jbusvent.2008.02.002

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