Risks and Rewards for Enterprise

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An outline of the key risks and rewards to entrepreneurship

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Risks and Rewards for Enterprise

  1. 1. Risks &Rewards ofEnterprise
  2. 2. What is risk? • The chance of loss or damage• The probability that something goes wrong leading to a loss • When a hoped-for outcome does not happen
  3. 3. What could go wrong for the entrepreneur? • Business will fail & lose investment • Possibly liable for debts (unlimited liability) • Harder to find work or start again • Stigma of failure
  4. 4. Why start-ups are risky• High rate of business failure for start-ups• Difficult to test a new business idea without trading• Easy to be over-optimistic in Silverjet Airlines Founded 25 Jan 2007 the business plan Closed 30 May 2008• Competitor response is often aggressive• Easy to underestimate the effort and persistence required to be successful
  5. 5. Three main reasons why start-ups fail• Insufficient customer demand – Poor market research & unrealistic plan – Competitor response – e.g. price –cuts or extra promotion• Good idea, but poor execution – Wrong people; poor management – Growth is too quick (overtrading) or too slow – Failure to manage cash flow• External shocks – Economic change (e.g. credit crunch, oil prices) – Legal, social & technological change
  6. 6. What is a calculated risk? A risk that has been giventhoughtful consideration and for which the potential costs and potential benefits havebeen weighted and considered
  7. 7. Calculated risks• Risk cannot be avoided in business• Entrepreneur needs to understand where significant risks arise• Then assess the probability of the risks happening (this has to be an estimate)• What would happen if the risks occur – cost, cash etc• Decide whether the potential rewards make the risk worth taking
  8. 8. Rewards of enterprise
  9. 9. Financial rewards• Profits – usually reinvested into the business in the early years• Dividends – taking profits and cash out of the business• Capital growth – an increase in the value of the business
  10. 10. Examples of non-financial rewards• A sense of satisfaction• Building something• Being in control• Making that first sale• Opening a new location• Employing more people• Getting an industry award or good publicity• Getting great feedback from customers
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