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Risks and Rewards of Running a Business

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Business Studies

The terms risk and rewards are often used together to emphasise the risk-taking approach. To gain more rewards, calculated risks must be taken. As Mark Zuckerberg, the founder of Facebook, said:

The biggest risk is not taking any risk. In a world that's changing really quickly, the only strategy that is guaranteed to fail is not taking risks."

Understanding a business enterprise

Employees in an enterprise are happy to contribute to its growth by fulfilling the roles that are required of them. They have no stake in the company as far as investment is concerned. They receive their salary at the end of the month. On the other hand, people who follow the route of setting up business enterprises, often face greater risks. Potentially, their rewards can be greater.

A business enterprise is an operation through which factors of production are utilised to produce goods or services with the goal of making profits.

The scale of an enterprise can be different. A company with more than 500 employees, or a small grocery store with only two employees, are both examples of an enterprise.

Risk and rewards of starting a business enterprise

The level of risk associated with starting a business enterprise depends on its scale. If it is a small enterprise, its operations are likely to be less complicated. The level of decision-making required for its operations is also potentially simpler. Hence, the level of risk is often at a low level. On the other hand, if it’s a big enterprise, with many operations proceeding at the same time, the decision-making could be complex, and the risks are often high.

One of the most famous investment principles is 'the risk-return tradeoff', which states that when there is a higher risk, there is a higher potential reward.

A lot of factors need to be assessed when turning a business idea into reality. When the market is uncertain, the one who shows courage and makes the first move could get a head start in the race. In marketing, this is known as the first-mover advantage. In such a scenario, the one who makes the first move could get big rewards.

Types of risks in business

There are a few risks that impact the future of a business.

Risks and Rewards of Running a Business: Market uncertainty

It is a common practice to conduct market research before devising strategies and visions for the business. It helps in reducing market risks to an extent. However, examining every possible scenario is one thing; experiencing market reactions to your business offering is another thing altogether. In a market, there are lots of unpredictable factors. For example, a change in government policy on the import of raw materials could entirely change the situation for business owners.

Risks and Rewards of Running a Business: Financial risk

Starting a business requires capital, be it through investment by the owner themselves, or other investors. In either situation, it presents a financial risk. Therefore, it requires comprehensive financial management to reduce this risk. An owner should have multiple financial plans in store in case of unpredictable situations. Financial inflows and outflows must be managed effectively to ensure the business is on track to meet financial objectives. However, even with more than one emergency financial plan, the risk can only be reduced to a certain extent.

Risks and Rewards of Running a Business: Health risk

Setting up a business enterprise can often come with lots of health risks too. Business owners have the ultimate responsibility in making decisions. They are the ones who lead the enterprise, and this could affect their physical as well as mental health. Starting a business means putting in more effort and time to plan everything and to execute the ideas. It means working extra hours and managing all the business aspects yourself. All of this adds pressure on business owners, and it could lead to mental and physical burnout.

Risks and Rewards of Running a Business: No guaranteed returns

As mentioned before, a business enterprise has financial risks. Even if everything is planned and executed effectively, there are no guarantees on returns. It all depends on how consumers react to the business offering. If it works then huge returns can be expected; but if it does not work, then huge losses are incurred.

However, there are people who still want to take this path. The reason is simple: greater risks often give greater rewards.

Types of rewards in business

Let's look at some reasons why people will take the risk of setting up a business enterprise.

Having your own business enterprise ensures more freedom. It gives owners a sense of ownership. They make key decisions and are viewed as leaders. This freedom allows owners to take up responsibility, ensuring more flexibility in decision making.

It is often said that business ownership gives far more freedom and responsibility than a paid job. A business owner can assess the market opportunities and can decide to benefit from them, without having to take permission from any supervisor. These opportunities would also enable him to constantly learn and grow as an owner and a leader.

Since starting a business enterprise comes with many risks, it also grants more financial rewards in most cases. The owners put so much at stake for business enterprises to grow, it is only fair that they get greater financial rewards for their efforts.

The motivation to work hard depends on the level of satisfaction you get during the whole process. A job that gives you satisfaction will always drive you to push for more, and achieve bigger goals. Freedom, a sense of ownership, and the ultimate responsibility that comes with running a business will keep you motivated.

In 2006, Google acquired YouTube for $1.65 billion. At the time YouTube had been around for less than two years. The video hosting platform was already well-known, but nobody had expected it to reach such heights. It was a bold move from Google to spend that amount of money on a relatively fresh company. Many business analysts thought Google had overpaid for this acquisition. The financial risks associated with this acquisition were enormous.

Google took the risk and now it is safe to say that it was a smart investment. They have got huge rewards. Now, YouTube has an estimated worth of $170 billion.

Different people have different aspirations in life. People who do not want to take risks, tend to prefer conventional job roles. To start a business enterprise is certainly risky, because of a lot of uncertainty in the external environment. However, people who assess the situations and take risks, are often rewarded.

Risks and Rewards of Running a Business - Key takeaways

  • People who start business enterprises often face greater risks; they can potentially get proportionally rewarded.
  • To gain more rewards, calculated risks should be taken.
  • A business enterprise is an operation through which factors of production are utilised to produce goods or services with the goal of making profits.
  • The risk-return tradeoff states that when there is a higher risk, there is a higher potential reward.
  • Market uncertainty, financial risk, health risk, and no guaranteed returns are the risks associated with starting a business enterprise.
  • There are many rewards of running a business; these include freedom, job satisfaction, and financial gains.

Risks and Rewards of Running a Business

Financial risk, market risk, and health risk. 

Freedom, financial gain, and job satisfaction. 

The main aim of any business enterprise is to make a profit. Financial loss and gain is the risk and reward respectively that can impact business activity. 

Risks
Financial risk, market risk, and health risk.

Rewards 
Freedom, financial gain, and job satisfaction. 

Financial risk, market risk, and health risk. 

Final Risks and Rewards of Running a Business Quiz

Question

What did Mark Zuckerberg say about risk and reward? 

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Answer

"The biggest risk is not taking any risk,". And also: "In a world that's changing really quickly, the only strategy that is guaranteed to fail is not taking risks." 

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Question

What is one of the things required for more rewards? 

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Answer

To gain more rewards, calculated risks should be taken.

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Question

What is the difference between risk-takers and non-risk takers?


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Answer

Risk-takers prefer roles that are non-conventional, whereas non-risk takers prefer conventional job roles.

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Question

What is the definition of a business enterprise? 


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Answer

A business enterprise is an operation through which factors of production are utilised to produce goods or services with the goal of making profits.

Show question

Question

What is the risk-return tradeoff principle?


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Answer

When there is a higher risk, there is a higher potential reward.

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Question

What does first-mover advantage mean?


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Answer

It means the one who makes the first move in the market could get big rewards, such as a competitive advantage. 

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Question

What are the risks of running a business enterprise?


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Answer

Financial risk, market risk, and health risk. 

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What are the rewards of running a business enterprise?


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Answer

Freedom, financial gain, and job satisfaction.

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Question

When did Google acquire YouTube? 


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Answer

In 2006. 

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What was the worth of YouTube in 2006?


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Answer

$1.65 billion

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Question

What did many business analysts say about the YouTube acquisition in 2006?


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Answer

 They said Google overpaid for the acquisition. 

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 What is the worth of YouTube now?

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Answer

Its estimated worth is $170 billion now.

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Question

Is 'freedom' a risk or a reward for business enterprise?


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Answer

It is a reward. 

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What kind of health risks are associated with running a business enterprise?


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Answer

Physical and mental health risks.

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Question

In 2006, which company did Google acquire?


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Answer

YouTube

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