Business & Investment

Learning More About The Principles Of Risk Management


When it comes to running your own business, it is considered normal that you manage many kinds of risk on daily basis since you have to make decision for many things. Every decision you take has its own risk. If risk cannot be avoided than at least you need to minimize possible impact so as to not ruin your plan or goals. However, risk management is quite confusing concept especially in the land of startups since founders are all-in on their high-risk projects. 

Important principles of risk management you should know

Starting your own business from scratch is already risky because you plan everything in hope that it will work successfully. However, sometimes it can be felt like playing  a game where there is also a factor of luck. Also, you need to calculate the unexpected when it comes to running business. So here are some of the most important principles you should know about to manage risk properly:

Be an empiricist

As mentioned earlier that startups are full of surprises. The fact is, startup is more complex than you think. There is no way you can fully understand the mechanics of a market. Accurate prediction is almost impossible because the system itself is very complex.

You need to anticipate the big outcomes that can be failures or successes. Hence, it is important to allow yourself to be lucky sometimes, and take a  big step. Fortunes happen because of constant hypothesis testing against reality until you land a big win unexpectedly. Hence, it is not your job to become an analyst. Instead, you need to be an empiricist where you constantly run experiments and test ideas such as products or services to the customers. It is best to invest in low money, time, and effort continuously into ideas with big upside potential. 

Time is your most valuable resource

It is not recommended for you to make big bet all at once because as a founder, it requires time and effort. Hence, it is best that you make your bets one at a time so you run many experiments one after another. As time is your most valuable resource, you cannot just waste it on a project that doesn’t have a lot of promise. You need to stay involved in the game while constantly testing new approaches and ideas. Do not be stubborn and hide it behind the word ‘resilience’ when you know it doesn’t have any potential to success. 

Say no to complexity

Building startup is a little like gambling because you use your pennies to play. However, pennies cannot buy you a lot of complexity and sophistication since your time and effort is limited. If you try to build something overly complicated, remember that it requires too many resources. Complexity often results in failure so investing too much into it doesn’t even make any sense. You may encounter something complex along the way through the project execution and it is common. However, complexity is not something a successful project has from the beginning. 

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