Decreasing Business Risk
When you visited the SBA website and studied their list of personality traits necessary for success, they described a successful entrepreneur as a “calculated risk taker.” What does this mean to you?
Wise businesspeople do not take foolish risks. Before spending money to launch a new product or business, successful entrepreneurs spend time sizing up or calculating the possible risks as well as the possible rewards. The two main questions an entrepreneur asks are:
- What is the potential profit for my product?
and - How feasible or “workable” is my business idea?
Michael Dell took a calculated risk when he started Dell Computer. Let’s look at how he answered these two questions.
1. What is the potential profit for my product?
By doing research, Michael found that he could buy the parts from wholesalers to build a PC for $700. He then checked the retail prices on similar computer systems and learned that people often paid $3000 for custom-built PCs. Michael quickly realized that if he kept his operating costs (such as rent, phone, utilities) low, he could make a tidy profit selling custom-built systems directly to the consumer.
2. How feasible is my business idea?
Michael had been working on PCs since he was in high school, and he had proven he possessed the skills and knowledge to build good computer systems. He had a place to work (his dorm room), and he had the time (all the hours he wasn’t attending classes). And all he had to do was sell one system to regain his original investment, so he needed very little start-up money. It looked like a very feasible business concept — and it was!
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