Minimizing risk when starting a small business


From USA Today

Q: Do you have a favorite sort of business that you like for the new entrepreneur? My skills are not online but that seems to be where everything is headed. My biggest fear is taking a risk and failing. Is there a type of business that can assure me success? — Kate

A: One thing I like for any entrepreneur, not just a new entrepreneur, is a business that does not require a huge amount of risk. Oh sure, I know, risk is a part of the game, a big part, but great entrepreneurs take smart, calculated risks if and when possible.

That said, there is no sure-fire thing. If there were, we would all be doing it. But there are ways to be smart and reduce the risk. That's the ticket.

Not far from my office are some cool, old warehouses. They are on the edge of a nice part of town and are ripe for regentrification. I'm not the only one to notice this. One local businessman decided to open up a Whole Foods type store in one of them, full of local produce and goodies. Word is, he spent over $1 million building-out the place.

That's a lot of money to spend on any business, but especially on a brand new business, and especially when there is a real Whole Foods less than a mile away.

The place closed within a year.

Sometimes you have to swing for the fences, and sometimes you knock it out of the park when you do. Babe Ruth did. But he was also the strikeout leader.

So let me suggest that keeping risk at bay — financially, emotionally, reputation-wise, etc.— is a smart move for the new small business. Here then are the different decisions you need to make when analyzing the options:

Online or off? It is true that business is migrating to the Web more and more every day, and there are many reasons for this:

  • It's where the eyeballs are
  • Lower overhead
  • Less financial risk

I say less financial risk because the cost of creating and maintaining a brick-and-mortar store is usually not insignificant. Creating an online store can be done fairly quickly, without a lot of money, and usually without the need to maintain a lot of inventory.

That said, physical stores have much to be said for them too, not the least of which, despite what some people think, we don't inhabit a virtual world; we still live in physical reality.

Service or product? If risk is the issue, then service businesses are great because, again, they are far less expensive to create. A lawyer can hang out a shingle and sell his or her time and expertise, but a gift shop has to not only hang out the shingle, but keep the store full of products and staffed by employees.

Franchise or from scratch? Most people start a business from the ground up. They come up with an idea, find funding, create a brand, and learn from trial and error. I did that, many folks do.

But another option is to buy into a franchise. If risk is your concern, there are some good things to be said for going the franchise route.

  •  For starters, with a good franchisor (note that, and re-read it. Not all franchises are created equal) the trial and error part has been handled already by the franchisor. They should offer you a refined system that has been hammered out and which works. That, in fact, is the whole idea behind franchising.
  • Second, they have already built a brand.
  • Third, they offer help.

For a new entrepreneur, these are not little things. Franchises can be expensive (but not always) and one of the things you are paying for is this leg-up.

In or out of the house? The last way to reduce the risk is to create a home-based business, at least for starters. Why? Again, less overhead.

Needless to say, many other things go into the entrepreneurship equation, but risk is a big one. You can mix and match the decisions above to narrow your choices and come up with a business model that fits your risk tolerance level.

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Virginia MacKoul

Virginia is a graduate from the University of Florida's College of Design Construction and Planning with a degree in Sustainability and the Built Environment, and a minor in Urban Regional Planning. Virginia joined the Front Street team in 2011, as an intern. Upon graduation, Virginia joined the Front Street team full-time as the Director of Client Services. Ms. MacKoul’s addition furthers Front Street’s continued growth and expansion within Gainesville and other North Central Florida markets. She was promoted to Director of Marketing in 2014 and now manages the firm’s team of interns and oversees all marketing and branding activity. Virginia was born in Boston and moved to Lee County, Florida in 1997. Virginia graduated her high school's International Baccalaureate program and started at the University of Florida with a focus on Architecture. Virginia shares Front Street's passion of giving back to the community and those in need. Virginia's hobbies include photography, cooking, football, movies, music, and spending time with her dog, Brinkley.

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