How to Determine If Your Tech Business Takes Enough Risks

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How to Determine If Your Tech Business Takes Enough Risks

Mon, 01/16/2023 - 11:55
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Starting a company is a risk in itself. Tech businesses sometimes take years to see growth. It’s natural to feel pressure as an entrepreneur with employees and clients relying on success. Unfortunately, some CEOs get into the habit of avoiding risks and taking the safe road. Doing so may mean the brand misses out on excellent opportunities. 

Finding the right balance between risk-taking and risk-avoidance ensures a brand grows steadily without imploding on itself. Taking the wrong risks costs companies money and may even cause them to shut their doors permanently.

How Do You Measure Business Risk Level?

Learning how to manage risks helps companies know which ones are worth taking a chance on and which ones to avoid. Choose the right ratio to measure risk for each point. For example, the contribution margin ratio is calculated by taking net sales, subtracting costs and dividing by sales revenue. 

Calculating risk gives business owners some peace of mind on which things they should take a chance on. Data allows one to see which risks to take first and which to sideline. Here are the top questions to determine if a business is taking the right risks and enough of them. 

1. What Is the Return on Investment?

If taking a risk makes sense financially, the next step is to figure out what the return on investment (ROI) might be for a particular risk. Stepping out on a ledge makes sense if the potential pay off is big enough to take a company to another level. However, extreme risk isn’t always worth it if the ROI isn’t high.

Companies grow more quickly with high ROI. Make sure the reward outweighs the worries that intrinsically come with action.

2. How Is the Business Using Technology?

Tech companies sometimes spend their time creating new products for clients and forget to keep the technology they use with those customers up to date. Turn your clients into the decision makers by tapping into the power of AI applications. Don’t be afraid to try something new with your customers if it benefits the brand as a whole. 

Ask questions they can answer with a tap on the smartphone screen. Look at what competitors use to drive growth. What technology is pricey but worth the investment? It's only a risk if it's completely unproven. Most new tech saves users time or improves output. 

3. What Is the Worst That Could Happen?

Some businesses fail to take enough risks out of fear. However, thinking about what the worst is that can happen helps manage the worries and also gives business leaders an idea of whether or not they can recover if the absolute worst does happen.

Ask what the worst is. What would the company response be in a worst case scenario? Is the potential payoff worth the risk? 

4. Is the Company Proactive About Risk?

When a brand manages risk in smart ways, it makes sense to take more of them. Having a plan in place for dealing with a variety of pitfalls not only creates a rapid response but reduces risk.

Proactive risk management applies to everything from hiring new employees to launching a new product. Business leadership should have a plan and implement it immediately when risk taking backfires. 

5. How Safe Are Investments?

Financial risks top the list of small business concerns. It's important to have some money socked away for a rainy day. How much risk should one take with company money, though?

Avoid risky investments and instead put savings into a money market account. Most money markets need a minimum balance of $2,500 to open. Once enough money is in a safe strategy, additional surplus can go into riskier stocks or investments. 

6. Does Risk Management Align with Corporate Strategy?

It’s important to align values with risk taking. If corporate strategy is for slow and steady growth, but management keeps taking huge risks in a gamble to grow rapidly, the two aren’t in harmony. Either the strategy or the risk must change so the two more closely align.

Whenever uncertain about balance between risk management and mission, consult department heads and even outside parties to see how they view the brand. 

7. Do You Keep a Record?

Leaders sometimes assume the brand takes more risks than it actually does. Keeping track of which risks the company embraced and which ones it avoided can help one see how often changes make a difference. Keep track not only of the risk taken, but of ones avoided. Jot down how successful each risk taking attempt was.

Record keeping also allows entrepreneurs to look at what went wrong and how to fix it next time. Over the growth of a company, failures come and go. Knowing how to avoid them the next time is part of the process and helps brands find success in the long run. 

8. What Are the Company’s Most Important Assets?

Take stock of the businesses most crucial assets. There are some things one shouldn’t put at risk. If the possibility of harming a product’s reputation or taking big financial hits might destroy the entire company, avoid such chances. 

Small Steps Make a Big Difference

For entrepreneurs still feeling uncertain about trying new things, start with something small. Smaller risks are sometimes easier to manage because failure costs less. Make one minor change and then another until big changes become second nature. Mitigating risk is a matter of taking the right steps and trying new things frequently.