LAHORE: Entrepreneurs in Pakistan have to take calculated risks to grow at least three times above the GDP growth of the country, instead of going for safe risk free investments in National Saving Instruments, where they do not build assets.
No business in the world is without risk and only those that manage risk prudently prosper; while those avoiding risks or taking highly risky decisions fold the shop after sometime. A classical example of prudent risk is that taken by the life insurance companies.
They insure a 25 year old youth at a very low premium spread over 25-30 years. But while insuring a 70-year-old healthy man they charge very high premium and the policy duration is only 5-7 years. The company takes a risk in both cases.
The youth might die in an accident or illness five years after taking the policy and the 70-year-old might survive beyond the policy duration. The company will lose money on insuring that youth. However, generally the youth survive much beyond the stipulated period of life insurance.
Business is risky if conducted without due diligence. In business operations there are four doctrines that determine the success or failure of a venture. The first is right-sizing the risk; the second is timing the launch; the third relies on knowledge and the experience in that business and finally scepticism.
An entrepreneur has to analyse his finances. Particularly if one wants to start a business after leaving a job. New entrepreneurs must take business decisions with the same care and dedication they apply in personal life.
It is also important to pay attention to the timing of the business. For example, it is a folly to open an ice cream shop in December. The entrepreneur will then have to wait for summer to get the business going. Similarly, establishing a woollen fabric shop in summer is also not advisable. An entrepreneurs’ experience and skills hold key importance.
The entrepreneur must assess his own level of competence and gauge will the customers be willing to pay for his product or services. Timing too affects many decisions. It can be more important or less, but it definitely is a risk factor.
In addition, hiring competent and experienced human resource is also must for the success of any business. It increases the chances of success in the business. It is very important to rely on knowledge and experience while hiring human resource. It is not prudent to hire a MBA, just because he is highly educated, when what you need is a competent technician.
For the success of a business, entrepreneurs have to rely on the right knowledge and experience. Therefore, it is risky to hire somebody who shows no aptitude or capability for the required tasks.
Remaining sceptical is important, especially when one is making investment decisions. It is very risky to jump on ideas floated by others at a dinner or outing. Prudent entrepreneurs commit their resources not in the spur of a moment, but they study in detail the pros and cons of the proposal.
One does need to be exposed to uncertainty to make any money or to make the right decision. But if he does not think through why it may go wrong, the business is pretty vulnerable. Business proposals that depict high profits in short time are usually fraught with danger. All business plans must be based on manageable risks.