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Old June 17, 2001, 08:16 PM
Dien Rice
 
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Default How to create a business with zero risk....

Thanks Michael, good story and really good wisdom.... :)

> And that, it seems to me, is a good business
> lesson to learn. Handle reverse - either to
> control it or stop it all together - and you
> won't crash.

> Have a back-up. Cover your downsides. Create
> a plan B.

> Whatever. Doing it would prevent the
> "grabbers" from taking your stuff
> when you crash cause you wouldn't crash.

I agree, Michael....

As you know, I've been studying "serial entrepreneurs" -- those who have started multiple businesses with "high" success rates. And I've noticed there are things in common between them all....

One thing which comes up over and over is that multiply-successful entrepreneurs limit their risk.

It's good to think positively -- otherwise you might not do anything at all. But the other side of that -- which isn't talked about very much -- is to think about what you'll do if it doesn't work. And I've noticed that repeatedly successful entrepreneurs do this....

One way is to have a Plan B, a backup plan, of another way you can profit if the first way doesn't work. And there are other strategies too.... For example, the idea of "testing" in mail order is another way of reducing risk, in a specific kind of business.

Another way is the approach used by Bob Reiss, which he explains in his book "Low Risk High Reward." He created a game based on TV Guide.... So by cooperating with a "big name" like TV Guide, he was able to reduce his risk. He also had an even better way....

Instead of paying his suppliers in cash, he made profit-sharing agreements with them, so they got a part of the profit.

This might sound like he was giving away his profits, since it's true, if the game was successful, then he would end up making less money. That's because he had to share the profits with his suppliers as well as with TV Guide (which also agreed to promote the game, also for a share of the profits).... BUT --

On the other hand, think of what happened if the game DIDN'T sell. Well, in this case, Bob Reiss had practically lost nothing! Since his suppliers were taking a share of the profit instead of cash up front, it also meant they were taking a share of the risk. In the end, he had "farmed out" the risk to others, so the financial risk to himself was practically zero.

He says in his book that most entrepreneurs are over-optimistic about their chances of success.... It's good to look at the "down-side" and actively look how you can limit your financial risk, through one scheme or another, just in case. Most don't even think about this, which is why some people start businesses then end up losing everything. It does happen -- but it doesn't have to.

Thanks Michael, excellent post! :)

- Dien
 


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