Entrepreneurship equals risk and it is always the goal of each entrepreneur and investor to lessen risk to near zero as possible. The lesser risk there is the better. Funny thing is that risk plays an important role in the greater macro level's point of view.
It controls and serves as an important guide to a business to innovate and progress.
Below are 4 roles of risk in entrepreneurship.
- Manages allocation of various forms of capital
Risk allows us to keep capital and resources to where we can get profit; resources that include human ingenuity. If the venture does not show adequate profit versus the assumed risk, the entrepreneur does not engage on it. Most entrepreneurs would choose to venture on a more desired innovation rather than venture to an alternative that is less desired by the society.
- Minimizes wasted resources
Most entrepreneurs would venture to something that is saleable to the society. If an entrepreneur chooses to embark to a lower venture or to a less innovative alternative, result will most likely be a failure or a lackluster result that would eventually lead to reallocation of resources. Because of risk, they would lessen their speculation on ideas that are not needed or desired in the society. Without risk, there would be more business enterprises that we do not want and hinder us to move forward as a society.
An entrepreneur whose business failed or is about to close down would most likely reallocate to a venture that is more profitable if the lesson is learned soon enough. This could also apply to the entrepreneurs itself as opposed to their projects exclusively, which could also be that the idea is with the wrong person. Thus, capital is allocated this way.
It provides real solutions to the market compared to clutter up second-rate alternatives thus eliminating competition. It also promotes creativity and it causes the proficiency in using each dollar. Most of the time, costs are assessed more closely and the idea that is desired most by the market are always the first thing to be developed.
With that said, entrepreneurs would now appreciate what risk can do with their business. Each entrepreneur and investor will then take the necessary steps as risk makes them efficient and will always keep them on their toes. They have no choice but to embrace what risk can do to their business.
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