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Why Entrepreneurs should not Put All Eggs in One Basket

money management

Do not put all eggs in one basket

Entrepreneurs are well-known as risk-takers. Some of them are going all out while some others walk their journey based on calculated-risk. Considering the volatility of the business world today, here is why entrepreneurs should pursue the calculated-risk path.

“Do or die” situation often brings out huge success because I believe people will generally exceed expectations when they are faced in a difficult situation (of course, some would crumble and flee from challenges…)

Aggressive risk-takers pursue “high risk, high gain” business opportunities, with a hope of striking a gold vein and being showered in riches. Some made it, but unfortunately, many fall deep into financial troubles – that almost always includes personal finances.

Why? Because aggressive risk-takers are going all out, including sacrificing their personal finances – in short, they put everything at stake. That is not really entrepreneurship – that’s more like gambling with “winners take all” principle.

In my opinion, when you are single responsible to nobody but yourself, you could take the all-out approach. However, if you have a family to support and/or are the primary bread winner of your family, going all-out is probably the biggest business mistake of all.

A story of a friend

I have a friend who works in a family business. His father, still running the small business, is a great risk taker. He has won big in the past, but he has also lose a couple of deals, including getting scammed by a partner in a half-million dollars deal – something that cause his family to go through deep financial problems.

Still recovering from the loss, my friend and his father are working on a deal worth that much. The catch: My friend – who also runs his own business – has to support his parents because all of his parents’ money is staked on the deal.

That is not a success story – yet – as the deal is in progress.

But here’s a think to ponder: What if the deal went off? This is not about seeing a glass half empty; this is about securing your personal finance while taking on business opportunities – because sometimes, you need to choose between pursuing a high-risk-high-gain business opportunities or ensuring your family welfare.

What I recommend

Maybe I am not a gutsy entrepreneur like my friend and his father, but I like my entrepreneurial journey to progress in a well-planned manner, especially financial-wise. I allocate my eggs into many “baskets” that include retained earnings to grow my business, investing (mainly in precious metals,) personal savings account, and some others. And yes, I don’t do stocks. By having multiple baskets, I spread risks to minimise damages when things go wrong.

Sure, surprises will happen on regular basis – that’s how entrepreneurship works, but I follow Rich Dad Poor Dad’s Robert Kiyosaki’s advice to manage my risk. I believe that taking steps not knowing what will happen as the consequences is risky.

I’m not an expert, so take this as a friendly suggestion, rather than a professional advice… I want every business decision I make to have a cushion or a safety net – just in case what I work on fails. I need to reassure that when I fail, I will be able to move on immediately, as I expect to fail a lot in order to achieve success (failure is my friend!)

I don’t know your financial situation right now, but I suggest you to strategise your plans with your hard-earned money. I don’t think going all-out is a good idea – it’s better to use other people’s money (bank loans, investor’s money, etc.) instead of staking ever penny you have in your business.

So – how about you? Are you a risk-taker who are willing to stake everything to achieve big success or a risk-taker who works on achieving your goal via strong risk management?

Ivan Widjaya
Managing risks

About the Author: Ivan Widjaya is the Owner/Editor of Noobpreneur.com. He is a web property investor, blogger and web property builder.
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  • http://www.clickandinc.com/blog Sarah Kolb

    Great advice for small business owners — but the same advice should be taken by employees as well. Remaining a salaried employee without developing other professional avenues of potential financial gain is a similar risk in that if you lose your employment, you have no other plans to fall back on. It’s generally less risky to diversify your income, whatever your personal or business situation.