4 risks that entreprenuers and businesses face.

There are four ongoing risks that entreprenuers and businesses alike will face. I call these four risks the "Big Four". These four risks are also inevitably faced by investors who invest in any companies. For an investor, one will like to consider the nature of the invested company and amount of exposure to each of these risks, and also the ability of invested company to deal with these risks.

Here are the Big Fours:-

1. Funding risk.

2. Market risk.

3. Timing risk.

4. Technology risk.

1. Funding risk

Every company be it start-ups or established ones requires some amount of funding to continue it's operations. It is rarely that a company can continue it's operations just on past retained earnings alone. This is especially true if the company is on an agressive growth phase. It is inevitable that such a company will need to tap on external funds in addition to it's internal funds to grow and expand it's business. For any business, the ability to establish multiple lines of credits, equities and loans become necessary to fund it's operations and growth. It is important that a company is able to seek out multiple funding sources and maintain a health ongoing relationship with it's creditors and equity owners, while at the same time estabilshing credit trustworthiness so that it has multiple funding sources to tap into either to continue it's operations or grow the business.

If a company is unable to seek out enough sustainable long term funding sources, this may jeopardise the ability of the company to continue it's operations, not to mention growth especially if the company cannot sustain it's operations and growth by internal resources (e.g. past retained earnings). In any case, even if a company has established mulitple funding sources, the company should be also careful in maintaining a healthy debt level so that it is still able to service it's debt interest and loan payments on time. Many a times, it is not the inability to establish multiple funding sources, but rather the inability to service debts that leads to the downfall of many companies, start-ups and also large businesses.

2. Market risk

Market risk refers to whether there is a market for the products and services of a company. It is prudent for any company to be able to understand the needs of it's target market well so as to roll out relevant products and services for it's consumers. It is not what the company thinks about how good it's products and services are, but rather how the targeted customers think about how good and relevant the products and services are to them that results in sales and revenues on the products and services. It is not easy for any company to understand the market needs despite doing extensive market research and checking with it's potential market.

In addition, needs and consumer behaviour of a potential target market may also change over time (sometimes even within a short time frame) rendering the products and services of any company irrelevant. Thus, like it or not, all companies constantly face the risk of it's products and services becoming irrelevant or less appealing to it's target market. This is especially true with so many competitors out there vying for a pie of the same market, thus making it even more difficult for any company to not only constantly improve and roll out relevant products and services for it's target market but at the same time having to compete with it's competition on the ability to reach the target market to secure market share.

An example of market risk is found in the many mobile phone producers that need to constantly compete to secure and enlarge their market share by always innovating their mobile phones to be more appealing in looks, functionality and catering to lifestyle needs and wants of consumers.

Other unforeseen factors can also present a market risk to any businesses. For example, a change in demographics such as a low birth rate in a local population over time may mean that businesses selling maternity products or providing child related services will see a shrink in their market size. Another example may be a change in government laws and regulations such as banning of consumption of chewing gums in Singapore which means businesses can no longer sell chewing gum products in Singapore thus removing totally the market for chewing gums in Singapore.

3. Timing risk

Timing risk refers to the risk of the products and services being introduced into the market at the wrong time or too slowly. For competitive products like mobile phones, the better the mobile phones and the faster the phones can be introduced into the market for a mobile phone producer will allow it to capture market share ahead of it's competition. It is thus easy to understand why Apple has introduced it's line of iphone products from iphone 3 to iphone 4 to iphone 5 at close timings. This is done to protect and also enlarge it's market share to prevent other competition with coming out similar phones to compete with Apple. By flooding the market at close timings with it's line of iphone products, this ensures Apple's current consumers will continue to upgrade their iphones to the next better iphones without leaving them a chance to consider other brands when other mobile phone producers have finally caught up with producing similar lifestyle phones to compete with Apple for market share. Thus, for such companies like mobile phone producers, the faster one to make the appeal may really make the appeal. Sometimes, it may not be the best quality products or services that can get the market, but the faster company to make the appeal of it's products and services will get the market.

There is also a need to determine the right timing to introduce products or services to the market. For example, a face mask company ramping up on it's production of face masks during SARS period will see their sales and revenues sky-rocket. Other times, it may not be wise for a company to be producing at such high quantities especially if the products have a limited shelf-life. This will mean wastage and lost of money for the company.

4. Technology risk

This risk is relevant for any companies that require technology in their operations and/or technology is found in their products and services. Any company will require some form of technology in their operations and manufacturing of products. All companies face the risk of their current use of technology becoming inferior or obselete to keep up with the technology of it's competition and also to answer ever changing needs of consumers. Technology risk is especially high in companies that require high amounts and level of technology in their operations, manufacturing process, and also on their products and services that compete on technology.

One example of high technology risk faced by companies is found in the digital media recording industry. We have seen how the very first video tapes are made obselete by the coming of a new and better technology in media recording, the compact disc format. Now, the compact disc format is slowly facing the same fate as the early video tapes as they are replaced by DVD format. There are also other better technology products around in the market such as the Blu-Ray disc format which may become the commonly used technology in future thus leaving the rest of the past media recording formats to permanently bite the dust.

Therefore, companies that deal with high technology in their operations, manufacturing processes and/or in their products and services will constantly face the risk of their technology becoming obselete with time. When their technology becomes obselete, companies have to spend on replacing their obselete technology with more current ones

Conclusion

Risks are always inherent in any businesses. A company has to be constantly aware of the types of risks that it faces and have measures in place to mitigate problems that may arise from the risks.