The internet has opened up new opportunities and lowered the barriers to entry in almost every industry. But it has also given more entrepreneurs the chance to be bold and take risks. Knowing how to embrace certain risks while avoiding potentially costly ones is integral to maximizing success.
The Role of Risk in Business
Risk is defined as the possibility of losing something of value. It’s also described as the purposeful interaction with uncertainty (specifically when something of value can be lost).
Naturally, most people are hardwired to be risk averse. It’s a survival mechanism that’s ingrained in our DNA to prevent us from walking into dangerous situations without some degree of safety or preparation. It’s why our ancient ancestors wouldn’t walk around the woods without a weapon and a hunting partner. They understood the risk of being vulnerable and implemented proven steps to lower their chances of being mauled by wild beasts.
While you don’t face the risk of being eaten alive by a hungry tiger every time you walk outside your front door, you do face daily risks in your entrepreneurial pursuits. And even though you’re genetically trained to avoid risk, you find yourself in situations where you’re forced to confront it. And if you peel back the layers and look beneath the surface, you’ll find that close proximity to certain risks can be healthy (granted you take the proper steps to avoid the negative consequences).
In the business world, we call this risk management. The proper risk management strategy helps you prepare for the unexpected, minimize threats, and counteract negative consequences through proactive decision making that increases your likelihood of experiencing positive results.
6 Big Risks Internet Entrepreneurs Face
As an internet entrepreneur in 2019 and beyond, you face a unique set of risks. And just as any business needs a risk management strategy, you need to develop your own approach to understanding and neutralizing threats. In particular, you must be aware of the following:
We live in a litigious society where lawsuits are filed with shocking frivolity and without apology. This has lead to a vicious cycle where restrictions are put in place to avoid lawsuits; lawsuits are filed when restrictive rules aren’t in place; and more restrictive rules are created in the wake of lawsuits. Lawsuits feed restrictions and restrictions feed lawsuits.
As an internet entrepreneur, you don’t have to agree with the litigious nature of today’s consumer marketplace, but you do have to respect it. Whether you sell physical products, a service, or advice, understand that you can be sued for virtually anything and make a small investment in defenses that will help you survive a lawsuit.
Business insurance is your best friend. In particular, you need professional liability insurance, which offsets some of the risk that comes from potentially damaging lawsuits from errors and omissions.
Insurance won’t prevent a lawsuit from happening, but it can offset some of the financial ramifications of a settlement or judgment. For the small amount of money it costs each year, it’s worth having in place.
2. Cyber Attacks
Small business owners and entrepreneurs know that cyber attacks happen, but generally assume that hackers focus their efforts on large businesses and corporations that are worth billions of dollars. However, this isn’t true.
The reality is that hackers prefer to target smaller businesses because they’re more likely to be unprotected and vulnerable to simple attacks. They view smaller internet companies and websites as easy prey and can execute a well-coordinated attack before you even recognize what’s happening.
Hackers who victimize your website can wreak havoc on your venture – leaving you with issues like:
- Malware. When a hacker infects your website with malware, it can leave you with glitches, exposure to future attacks, and an array of consequences that leave you and your customers unprotected.
- Ransomware. The rise of ransomware has been one of the hottest topics in the cyber defense field over the last three or four years. Ransomware is especially dangerous because it leaves you unable to run your website and on the hook for a ransom (which is typically a pretty sizeable amount of money).
- Data theft. Data breaches are, unfortunately, quite common. If you aren’t careful, a data breach could compromise the trust that exists between you and your customers, leaving you with a mess to clean up.
- Content hijacking. While it gets much less attention in the media than malware, ransomware, and data theft, content hijacking is just as costly and frustrating. This occurs when someone else takes your website content, media, and brand personality and attempts to create their own website or blog using your sweat equity.
Smaller businesses find it nearly impossible to recover after a cyber attack. In fact, the vast majority end up failing within six months to a year of the attack. Thankfully, it doesn’t have to be this way.
Being aware of the cyber threats you face is just half the battle. You need a proactive strategy that prevents these attacks before they happen. As your company grows, it may even be helpful to hire a full-time cyber security professional to work on your behalf.
3. Stiff Competition
Most entrepreneurs misunderstand the idea of competition and, in one way or another, it comes back to bite them.
Contrary to popular belief, you don’t want to start a business in an industry where there is no competition. This typically indicates there’s no market for whatever it is you’re trying to sell. And unless you have deep pockets and lots of time, you simply won’t be able to educate people on why they need your product and then convince them to buy.
As the old saying goes, pioneers get shot, but settlers get rich. In other words, the first one to market is rarely the most successful. It’s the ones who follow the pioneers who generate the best results.
On the flip side of things, you don’t want to start a business in a niche where there are already two or three businesses with double-digit market shares. This indicates that the marketplace is already locked up and you’ll face an uphill battle trying to break in.
What you want is a niche where there’s already some competition, but it’s spread out across a handful of different businesses. This indicates that there’s demand for the product, as well as an opportunity to become one of the market leaders.
Competition is good – but there’s a sweet spot. Keep this in mind and don’t get involved with an industry where your potential is stunted from the start.
4. Rip-Off Products
When physical products get ripped off, it’s fairly easy to step in and do something about it. But when you’re selling a service or education, rip-off brands can really put a dent in your profits and pull customers away from your business.
In an online world where you put your products and services out there for the world to see, there’s always the risk that someone could come in and steal your thunder. The best way to avoid this is by (a) filing for all of the proper trademarks and patents, and (b) creating such a magnetic brand that it’s impossible for another company to come in and take your customers away without first creating an equally powerful brand of their own.
5. Social Media
You probably view social media as a business asset, but this isn’t always the case. Whether you realize it or not, social media can actually introduce your business to numerous risks and challenges.
In terms of branding and reputation management, today’s online businesses face serious risks at the hands of social media. One ill-worded tweet or poorly timed Facebook post can lead to negative backlash and serious consequences in the court of public opinion.
The best thing you can do is create very strict rules and processes around what can be posted, who can post, and how content is reviewed, edited, and revised prior to posting. A strict social media policy is necessary for even the smallest, one-man operations.
6. Reliable Employees
Being able to hire a remote workforce is great, but it doesn’t come without its risks. One of the risks is a lack of reliability and accountability.
Being unable to meet with employees face to face makes it harder to keep them in line, but it doesn’t have to leave your business weak and disorganized. What you need is a strong approach to online hiring that allows you to carefully vet and onboard employees so that they understand what your organization is all about.
It’s also important that you manage remote employees well. This means keeping track of work activity, establishing clear expectations, promoting collaboration, encouraging employee engagement, and providing them with the right tools to succeed.
Set Yourself Up for Success
There’s no switch you can flip or button you can press to guarantee yourself success as an entrepreneur. In fact, the numbers are against you in almost every regard. However, if there’s one thing you can do to lower your chances of succumbing to the same failures as many of your peers, it’s to educate yourself on the challenges you face so that you can implement appropriate defenses and antidotes.
As you know from firsthand experience, you face dozens of risks in running a business. The key is to understand the ones that are most pertinent (and potentially detrimental) and to manage these risks in such a way that you have a better chance of being successful in the long run.