Common Risks in Entrepreneurial Companies

Common Risks in Entrepreneurial Companies

Although every organization has to deal with a set of risks that are specific to the situation the company is working with, there are four risk categories that are common to basically all entrepreneurial companies. These common risk categories in entrepeneurial companies are the following:
1. Consumer Demand Risk: This risk refers to the difficulty to predict consumer demands and therefore the risk of producing products that do not match consumer demands. For example, before the Apple iPod was introduced, there did not exist any product that enabled taking your entire entertainment collection with you. Therefore, forecasting the demand for Apple iPod was hard.
2. Product and Technology Development Risk: This risk refers to the risk that exist within the process of developing a certain product/technology from a concept to a commercial good. Many great inventions begin with making big promises but fail to become successful, because of this risk. It is therefore critical to analyze and manage this risk carefully.
3. Profitability Business Model Risk: In order to stay sustainable, every organization needs to create enough profits. To do this, organizations have to determine a business model that takes into account the multiple issues besides the issue producing products at a lower costs than the revenues that will be obtained by selling the product. Companies thus must manage the risk related to the specific elements of the chosen business model.
4. Competitor/Market/Product Obsolescene Risk: There will always be a risk that a certain product or service will become obsolete. Actually, almost all products launched will be overtaken by other goods because of the existence of competitors who want to stay competitive.
Source: Skarzynsky, P. and D. Schaedler (2010) A New Model for Unlocking the Value of Entrepreneurial Businesses” Business Strategy Series Vol. 11 Iss.5 pp. 271-276