Owning and running a small business successfully is not easy. Yet, many business owners open a business on nothing more than a simple down-payment, a dream, and a vague idea of how to run a business. We know that the first 3 years of owning a business are the most difficult and the most important to navigate successfully in order to stay in business. But most people are not prepared for this reality. Many business owners skip the steps of: having an actual business plan; having enough funding and savings; creating or putting the proper systems or processes in place to address all the needs of their business; real market data about their potential markets; and enough of an understanding of their clientele and what it takes to build a brand and loyalty.

In the first couple of years of business, there are normal ups and downs. However, at the first signs of trouble, many people panic. They seek advice from all the wrong places and people who are just out to make quick money off their lack of knowledge. Many small business owners fall prey to the latest ‘get rich quick’ schemes instead of looking to experienced and well-educated business professionals who are set up to help. 

The real work of starting, running and maintaining a small business is hard work – much harder than most people think. 

In the work I do consulting with small business owners I see first-hand how many people start without a business plan and without understanding the risks of their first few years in business. I have even had business owners ask if my services will guarantee that they will earn a specific amount of money in a specific amount of time. That’s how I know they have listened to all the wrong voices and fallen for all the wrong schemes. The truth is there are no guarantees in business – for anything – ever. The sooner we accept that fact, and that owning and running a business is hard, the sooner we can dig into the real work.

But how do you even know if running a business is right for you in the first place? Lots of people will tell you your ideas are great and you should open a business. But do you have what it takes to actually successfully start, run, and grow a business? 

Let’s look at one key factor. Risk Tolerance.

Knowing one’s risk tolerance levels is not the only factor to running a successful business, but it is a big factor. Some people have naturally high tolerances for business and financial risks. Others have a low tolerance for risks. The first question you want to ask yourself before opening a business is, “How do I handle high risk situations and uncertainty?” Another is, “How do I handle failure or set-backs?” If your tolerance for risk and uncertainty is low, and you do not handle failure and set-backs well, then you are not a good candidate to go into business for yourself. If your tolerance for risk and uncertainty is high, and you handle failure and set-backs with relative ease, then you are likely a good candidate to be a business owner.

Typically, the first three years in a new business are a bit chaotic, have lots of ups and downs, and even experience failures and financial losses. Mistakes are normal. The learning curve can be steep. And it is stressful. Building a successful business takes prolonged effort, quarter by quarter, continually working to break even and then start making a profit. When done well, the growth is steady – not too fast and not too slow. Brand awareness and loyalty typically take 2-3 years to build if everything is going well. But it often takes much longer. 

The most successful business owners have done their research, put together their business plans and contingency plans, secured funding, may have savings in place, and know it will take a few years of good hard work before they see the rewards of their labor. Are some businesses faster or slower than others – yes. But generally speaking, it is normal to expect it will be 2-3 years of building before reaching the next stage. This building stage also typically involves the highest levels of risk. 

What types of risks are we talking about? This article is a good reference point for the types of risks to identify and be prepared to deal with as a business owner. Not all of them will apply to you, and this is not a comprehensive list. There can be many more depending on your specific industry, location, and scenario. https://accountingprofessor.org/25-business-risks-every-business-owner-should-know-and-how-to-counteract/

How does one measure, mitigate, and manage the risks? This article from Forbes is a good general overview. https://www.forbes.com/councils/forbesbusinesscouncil/2023/09/28/fundamentals-of-risk-assessment-methods-and-tools-used-to-assess-business-risks/

If you look through those articles and types of risks, and feel like you can handle most of them pretty well, then there is a good chance you have a good risk tolerance for being a business owner. However, if you look through those articles and become overwhelmed or recoil at the thought of having to deal with any of that, then you may want to reconsider being a business owner. 

Are there exceptions to the rule? Yes. There are some successful business owners who are very risk averse. But they most often have business partners who are willing to take risks and thereby balance the risk equation, or they have enough money and other resources to mitigate the risks before they start. 

There are many ways to identify and evaluate risks in business. If this piqued your curiosity and you would like to learn more, I would be happy to have a conversation or two with you to help you sort out your own risk tolerance levels and make wise decisions accordingly.