Risk and the idea of base probability to help grow your business

How to manage risk depends on your understanding of risk and the idea of base probability of any business outcome. Are you doing what it takes to make your business successful, by diligently doing the “must-do” steps?

The basic role of the entrepreneur is not taking risks, but mitigating risks and increasing the chance of business success. It is important to understand risk and probability. Both are related but different concepts. Risk is a chance that the outcome you desire will or will not happen. Probability is the measure of likelihood that an event will happen.

So risk is that a lady can get pregnant if she copulates. Probability is the measure of the likelihood that she will get pregnant. It depends on whether a number of requisite concurrent factors are in place for pregnancy to be the outcome of the action. 

Similarly in business, risks are clearly known if you care to elucidate them, but the uncertainty is about the chance that all or some of them will or will not happen. Every outcome has a natural base probability of occurrence and the associated uncertainty can never be controlled or resolved. But one can influence the outcome but ensuring that the base conditions are met so the base probability is achievable.

Let me explain, imagine that you are required to throw darts to hit the bull’s eye. There is a base probability that this will happen – whoever throws it. But imagine that the dartboard is placed in a dark room, you have a dart that is bent and has broken fins, you are blindfolded, you are drunk and you don’t know which directions the dartboard is. Will you be able to achieve the base probability of hitting the bull’s eye? Surely not! Thus, to achieve the base probability you must be sober and alert, not blindfolded, have an aerodynamically designed dart, you must face the dartboard that is placed in a well lit room, be without distraction and have put in enough practice (skill development). Here you are not doing anything unusual, just doing everything that you must do. The key phrase is “everything”. Not doing even one of the activities listed above can hinder the chance that you will hit the bull’s eye as compared to a person who follows everything in that list above.

 Every business has a base probability for success (depending on the product, market and competitive presence). All you must do is to have all base events covered; to allow base probability to work. Because entrepreneurs compromise working on some important base factors, due to lethargy, callousness or cost; they sacrifice on occurrence of the base probability for business success.  Just as we had to do some base activities to increase chance of hitting bull’s eye, we must identify and execute such base activities that help us achieve base probability for business success. These base activities form what we commonly refer to as Key Success Factors, something we must do so that we will succeed.

In the blog that follows, read about “exponential risk reduction” and how it affects your business success.

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Read - Business owner must avoid becoming a self-employed businessman.

Visit www.mapcerebri.com

Also see the following links:

The Phantom Ceiling Effect.

How do you recognize the Phantom Ceiling Effect?

Breaking through the Phantom ceiling Effect.

Review you Revenue Model.

Structure-System-Staff and the Role of the Chief Entrepreneurial officer.

Reviewing structure to optimize performance of a small business.

Having the right systems – standardizing for performance.
Staffing - Critical success factor to keep growing.

Business Owner - Chief Worker or Chief Entrepreneurial Officer?

Capital Adequacy and Financial leverage - preparing for opportunistic growth

Capitalizing on External Expertise - introducing competence for performance.

Business owner must avoid becoming a self-employed businessman.

As your business starts to give a steady income stream, you have to make a choice. One choice is instant gratification by sucking away your profits from the business. Second is to postpone rewarding yourself with the intent of making big gains, by reinvesting profits into your business. What you choose determines how big your business can be.

  

Whenever we speak of a primary qualification of an entrepreneur, it is always said that the entrepreneurs must be risk takers. While this is somewhat true; is not entirely true. Let me explain this – when a person chooses not to work for a salary, he takes a professional risk with his income stream. He trades the comfort of a regular salary and embraces the risk of exchanging his idea of a product or service for a larger and growing revenue steam, in the near future. At the beginning of his entrepreneurial effort, there is risk until the start of his revenue stream. Thereafter, he seeks a steady revenue stream. Following achievement of a regular and steady income; how he thinks determines, how big he can be. He can look for growing his revenue stream or look for the comfort of a steady income.

Having gone through a phase of severe paucity of personal income, a steady flow of revenue comes as a whiff of bliss; he suddenly has at his disposable income that he can use for his personal and family welfare. The more he focuses on this, the less will he want to take any risk that will disturb his steady stream of disposable income. He develops an aversion to invest in his business and therefore, fails to grow. Instead, he seeks to keep up the steady revenue stream, whilst saving costs. By doing all work himself he gets bog down. Chasing business growth needs monetary investment. The “what if” doubt is about ROI on additional investment and the necessity of sacrificing profit in the short run, to chase a prospective revenue growth.

A large number of businesses fail to make it big, because business owners see a gradual decline in their risk taking ability as their businesses start to grow. At this inflection point, business owner must make an important value decision of going for growth and glory versus settling in for mediocrity and having a stable and steady income for himself. That is to say, if he chooses the latter, he could become a self-employed businessman.

In the blog that follows, read to understand the concepts of “risk” and “probability” and how you can work yourself out of your comfort zone and grow your business into a big one.

Picture Courtsey -FreeDigitalPhotos.net_jscreationzs

Visit www.mapcerebri.com

Also see the following links:

The Phantom Ceiling Effect.

How do you recognize the Phantom Ceiling Effect?

Breaking through the Phantom ceiling Effect.

Review you Revenue Model.

Structure-System-Staff and the Role of the Chief Entrepreneurial officer.

Reviewing structure to optimize performance of a small business.

Having the right systems – standardizing for performance.
Staffing - Critical success factor to keep growing.

Business Owner - Chief Worker or Chief Entrepreneurial Officer?

Capital Adequacy and Financial leverage - preparing for opportunistic growth

Capitalizing on External Expertise - introducing competence for performance.