How Do You Balance Risk and Reward in Business?

[SchutteSolutions]

"Our problem in money-making or government affairs is how to remain properly venturesome and experimental without making fools of ourselves. --Bernard M. Baruch

This quote seems to represent the pursuit of business in general. Initiating a new endeavor is a risk that carries potential rewards. What process do you have to mitigate risk or evaluate the return on a prospective project?

[vangogh]

I wouldn't say I have processes in place to mitigate risk. For me it's more about evaluating things on an individual basis. I think about the pros and cons, what the potential risks are, and the possible rewards. I'll also look at my current situation. Sometimes I'm more willing to take a chance and sometimes I'm not. Maybe there's a time where my finances are doing well enough that I'm willing to risk more than other times. That kind of thing.

I'm not sure if there's a process there, though I probably go through the same general steps and thought process each time.

[Brian Altenhofel]

I score potential clients based on various traits. Their total score must meet a certain minimum before I take them on. I find that it helps keep me from getting blinded by a single positive or negative trait.

When it comes to things like offering a new product or service or changing an offering, I seek outside input from people that I know couldn't care less if I succeed or fail, even if they are in a better position to execute. Sometimes, I'll do market surveys.

[vangogh]

I've never kept a score with clients, but I probably do something like that in my head. I've learned to watch out for some warning signs over the years and I've also learned how to ask the right questions early in the process. One thing I discovered is to bring up the topic of money as soon as possible. If a potential client is unwilling to talk about it or worse keeps changing the subject, it's usually a sign they aren't looking to pay. Plus it helps both of us quickly find out if we're in the same ballpark. Better for both of us to know that sooner rather than later.

[huggytree]

one you know what you are doing in business there is pretty much no risk.....ive been in business for 8 years now.....the risk factor is down to 1% of less.....i know whats going to happen in almost every case with every customer....ive been at a point for 3-4 years now where i dont think i can lose anymore as long as i keep my current business model

[vangogh]

one you know what you are doing in business there is pretty much no risk

I get what you're saying, but there's always risk. More experiences can help mitigate the risk, but risk is never eliminated. The fundamentals of your industry aren't likely to change any time soon, but there's no reason why tomorrow someone can't come to market with a new product that makes plumbing as we know it irrelevant. Not likely, but not 0% either. A new competitor could also come along that takes over the market.

I wouldn't expect either for you. I think you're in a pretty stable industry but you always want to keep the possibility in mind.