Get Ahead Faster By Lowering Your Small Business Risk

Risk is an entrepreneur’s badge of honor. It defines who they are. But as they grow their companies, a new word gets tossed around by those who might buy, invest or lend to that company: de-risk.

De-risking is just what it sounds like—taking risk out of your business. For example, if your company has a single client that makes up 50 percent of your revenue and you can reduce that to 20 percent by growing revenue from other clients, you’ve made your company less risky because you’re less dependent on one client. No matter how great your profits and balance sheet, lenders, including us at ARF Financial get nervous when small businesses are dependent on a single client.

What if there was a way to build a high-value company without constantly walking the tightrope of risk? There is actually a “least risky” path for building high-value companies. This approach is practiced by thousands of entrepreneurs and yet de-risked entrepreneurship is rarely discussed.

What is De-risking in Business?

De-risking involves strategies and measures to reduce the potential risks that can affect the stability and profitability of a business. By identifying vulnerabilities early and taking steps to mitigate them, businesses can enjoy more sustainable growth and attract potential investors and buyers.

The Entrepreneur’s Paradox

It’s common to think that taking significant risks is the only way to achieve substantial rewards in business. However, this mindset can lead to unstable growth and unforeseen setbacks. The reality is that many successful companies have thrived by minimizing risk and taking measured steps toward growth.

Why Starting Small Can Be Big

One of the most effective ways to de-risk your business from the beginning is to start small. This means identifying a specific problem faced by large companies and providing a solution tailored to that need.

The Power of Government Contracts

Another powerful way to de-risk your business is to secure contracts with the government. Governments are responsible for launching thousands of entrepreneurial endeavors, partly because they are great payers.

Leveraging Government Resources

The federal government provides various resources to help businesses build value and reduce risk. Programs like Small Business Innovation Research (SBIR) offer significant financial support to small businesses for research and development.

The Role of Non-Dilutive Grants

Non-dilutive grants are cash sources of capital handed out without expecting any equity in return. They are a fantastic way to fund your business without giving away ownership.

Building Around Regulatory Changes

New regulations can create opportunities for businesses that can help industries comply with these changes. By positioning yourself as a solution provider for regulatory compliance, you can secure a steady stream of clients looking for assistance.

Understanding Market Needs

By focusing on serving large companies or government contracts, you start your business on a strong foundation. These clients are not only reliable payers but also provide the opportunity to build long-term relationships that can lead to more business and less risk.

The Least Risky Path to High-Value Companies

By starting with a small business that solves a problem for larger companies, securing government contracts, and leveraging resources like non-dilutive grants, you can significantly reduce the risks associated with entrepreneurship. This approach allows you to build a stable, high-value company without constantly balancing on the edge of disaster.

The Unexpected Benefits of De-risking

De-risking doesn’t just make your business safer; it also makes it more attractive to lenders and buyers. A company with stable revenue streams, diversified clients, and government contracts is far more appealing than one dependent on a few high-risk clients.

Final Thoughts

Risk is a natural part of entrepreneurship, but it doesn’t have to be the defining feature of your business. By focusing on de-risking from the start, you can build a high-value company that attracts clients, investors, and buyers.