Solopreneur risk management is a vast subject. You have to factor in financial risks, business risks, market risks, and your health risks to do justice to it. Solopreneurs don’t have the luxury of insurance cover of various kinds that 9-5 jobs give. They often don’t even have a cushion of money set aside to tide over a bad run of time. If solopreneurs need to mitigate risks in business, it all falls on their shoulders. But with some essential planning and proactive measures, it’s possible to anticipate and avoid most risks. Read people’s opinions on this roundup to understand how they view risk management and cover themselves for contingencies.
- It’s risky being a solopreneur – you’re susceptible to the drag of expenses
- Studies show solopreneurs suffer psychological risks more than employees
- The risk of trying to be all things in a business is a huge burden to carry
- It could be that not having insurance could open you up to unnecessary risk
- As a solopreneur, you’re exposed to a variety of risks, environmental to digital
- Diversify your income sources – don’t risk all earnings on just one income source
- Itâs wise to be aware of technology, people, and market risks as your business grows
- Two main business risks are costs of legal suits, and business interruptions
- Online reputation risks are real, and need serious and proactive management
- Be sure to cover your total monthly cost for health, life, and disability insurance
- Understand this truth – the existence of risk implies existence of opportunity
- The best solopreneurs always have on hand a Plan B (as well as Plan C, D and E)
- Risks have two dimensions: likelihood of occurrence, and severity of consequences
- Working with newer technologies means there will be risks no one faced earlier
- Risk management needs to be monitored to forestall future repeat of risks
- Every decision taken by a solopreneur has many hard-to-gauge risks attached
- Take calculated risks – and ensure your fallback plan is not to go back to a job
- Risk-takers enable innovation and opportunity – and get a competitive advantage
VIDEO: Fallon Rice Scott, in this informative video, discusses: “Key Man Risk: Over Exposure of Small Businesses, Founders, Service Providers, Solopreneurs & Pastors” (Must watch: 17:00 minutes)
Key Man Risk is the major risk your business faces if you are the key to your whole business and it will collapse if you fall ill or have an accident or are incapacitated for a length of time. It’s particularly pertinent to know this topic inside out if you’re a solopreneur. That’s just what Fallon Rice Scott explains in this video … what is Key Man Risk, why it matters to you, and how to mitigate the risk.
1. It’s risky being a solopreneur – you’re susceptible to the drag of expenses
Justin Jackson in the article “Being A Solopreneur Has Risks”:
“When you’re a solo-founder, everything rests on your shoulders. You get 100% of the upside, but you also bear all of the risk. If you get sick, or if something doesn’t go as planned, there’s no one there to pick up the slack.
One of my readers, Murray, from Red Deer, AB, articulated it this way: “It’s risky being a solopreneur. You’re uniquely susceptible to the drag of expenses. If you experience health issues… the company may need to rely on its momentum for a little while. Expenses, are a drag on that momentum when the one and only cylinder falters. Minimizing expenses is the best insurance for keeping a solopreneur’s business alive when life gets in the way.â”
Minimizing costs especially makes sense when you consider the scale of a solopreneur’s company. If you’re making $500,000 a year, canceling $500 / month in subscriptions might not make a big difference on your bottom line. But if you’re a solopreneur making $100,000 a year, $500 in monthly expenses represents 6% of your annual income. What solopreneur doesn’t want, or need, an extra $6,000?
When I started my little side-hustle in 2012, I was incredibly frugal. My only real expense was a $10 Bluehost bill! But as my revenue increased, it was easier to say “yes” to more things: travel, apps, and subscriptions. Before I knew it, expenses had ballooned to an average of $4,400 per month!â
2. Studies show solopreneurs suffer psychological risks more than employees
Minda Zetlin in the article “The Psychological Risks of Being a Solopreneur (and How to Deal With Them)”:
“Do you dream of working for yourself? Setting your own hours, being your own boss, never having to answer to an unreasonable manager or cantankerous customer again? It might sound like paradise, but it isn’t.
A number of studies over several years have shown time and again that solopreneurs suffer from worse mental and physical health than their employee counterparts. In short, being a one-person company can be extremely stressful.
But it doesn’t have to be. As a (relatively) well-adjusted person who’s been a solopreneur for decades, I can tell you that it is possible to work for yourself and retain some mental balance.
It isn’t necessarily easy. But it will help if you take a little time to think about the biggest stressors for solopreneurs and how you might address them. There are always ways to make things better.â
3. The risk of trying to be all things in a business is a huge burden to carry
Marc Guberti in the article “The Risks Of Being A Solopreneur”:
“It is possible for an entrepreneur to go solo. Entrepreneurs can succeed without any help. However, it is going to be a lot easier to be successful if you donât become a solopreneur. With a team, you can come up with new ideas. Twitter was formed by a group of people working together. Facebook was formed by a group of people working together. Plenty of other companies were formed by a group of people working together as well.
Itâs better to have a team to help you. With a team, there are more people with more expertise. You donât have to know lines of code. One of the people on your team can be a coding expert.
There are going to be people who know methods of improving your business or how to do things related to your business that you donât know. No one has all of the knowledge there is to be offered. The only way to know about what you donât know is to have a team.
If youâre a solopreneur, chances are you are doing countless hours of work for your business. Instead of working on your business for countless hours, you can create a team so you will have more time to do different things. Having a business is important, but being able to take a break from your business is important as well.”
4. It could be that not having insurance could open you up to unnecessary risk
Melinda Emerson in the article “How to Avoid Risks When Becoming a Solopreneur”:
“As a solopreneur, you might feel insurance is either a luxury or something you just wonât ever need. Although it is sometimes the case that solopreneurs wonât find any business coverage particularly useful, it is largely dependent on the work that you do and it could be that not having insurance in place could be opening you up to an unnecessary risk.
Just as an example, public liability claims can hit the millions in some cases, and it is unlikely that youâll realistically be able to cover that sort of figure even if you do become hugely successful in your venture.
What many donât realize is that insurance premiums for business insurance tend to scale depending on the size of the business itself, so if youâre on your own, those premiums are likely to be much lower.
How to avoid it: Contact a broker to confirm whether you actually could benefit from insurance or not. Being a solopreneur might mean that thereâs nothing that you really need, depending on your field. Public liability insurance might be something you could take advantage of if you have lots of visitors to your premises, but the type of coverage you could use will largely depend on the sort of work you do.”
5. As a solopreneur, you’re exposed to a variety of risks, environmental to digital
Jessica Thiefels in the article “What Solopreneurs Should Know About Business Insurance”:
“For most entrepreneurs, being a solopreneur is the reality. Youâre a one-person team, managing everything from HR to sales. Just because you run the business alone, however, doesnât mean your business isnât at risk for data breaches or complaints of negligence.
As a business owner, you expose yourself to a wide variety of risks, from environmental to digital. For example, in 2017, half of all small businesses experienced a data breach, and 55 percent experienced a cyberattack, according to Insurance Information Institute (III).
Fortunately, you have access to a wide range of business insurance types, including cyber insurance, to protect yourself and your business against these unforeseen dangers and risks.
As you look at insurance for your business, consider the following factors, including cost, total coverage options, needs specific to your business and legal requirements.”
6. Diversify your income sources – don’t risk all earnings on just one income source
Yash Raj Agrawal in the article “6 Account/Finance Management Tips For Solopreneurs”:
“For solopreneurs, it is pivotal to get revenues from multiple sources, especially given the turbulent nature of the market.
Many solopreneurs consider their ventures as a side-hustle while they make money from full-time work. This reduces your reliance on one income source, thus reducing risks.
Income from multiple sources also reduces your dependency and desperation, and with less risk-taking involved, you end up making better business decisions. Hence, if you are a solopreneur focusing only on your venture, it is time to think about launching an additional product or service.
You can start with something you are already good at (e.g., a hobby or a passion that can be monetised) or something associated with your venture. This will ensure that you play to your strength, which improves the chances of success.”
7. Itâs wise to be aware of technology, people, and market risks as your business grows
Courtney Rosenfeld in the article “Four Ways Freelance or Online Help Can Minimize Risks for Solopreneurs”:
“There comes a point when handling things solo becomes a major risk for any small business owner. Even solopreneurs. Because even though you can start a successful business completely on your own, you may not be able to grow it. Thatâs why somewhere along the path to success, you may need to look for online or freelance help.
When it comes to startups, information is priceless. Even in the beginning, you need the right information to decide how to set up your business. For instance, understanding how various entities affect your personal liability, taxes and other elements is crucial. Luckily there are fairly inexpensive and comprehensive formation services available online. These handy services will take care of everything from filing paperwork to providing you with legal documents.
As a business owner, you have a responsibility to understand what sort of risks startups encounter on the road to success. The most common risks facing entrepreneurs include financial and legal risks, which can be mitigated by taking the aforementioned steps. Additionally, itâs wise to be aware of technology, people, and market risks.
As you grow your business, you may look forward to growing across international borders. Mobility and transportation services have provided more recent models for global expansion, as well as a chance for other entrepreneurs to be aware of potential hurdles. Providing services and products in other countries may require you to be aware of regulations. You can generally find resources online to help you learn about various foreign regulations that could impact your business. “
8. Two main business risks are costs of legal suits, and business interruptions
Julien Labruyere in the article “Solopreneurs: Essential Business Risks You Need to Know”:
“Starting a business as a solopreneur can be an exciting and fulfilling venture. However, there are some business risks that can make the journey daunting. While such risks may be unpleasant topics of discussion, it is essential that such key risks are taken into account.
Some of these risks are foreseeable while others not. Regardless, it is essential to equip yourself with knowledge of these risks so as to safeguard yourself and your business. Two main form of business risks are: the danger of legal suits and cost of litigation, and the cost of business interruption due to accidents and other circumstances.
Regardless of whether you are an experienced individual or a young company, mistakes are bound to happen from errors or unforeseen circumstances â and the end result often does not end up in your favour. In a worst case scenario, unhappy clients may take legal action against you for such mistakes which could be devastating for a consultant just starting their career.
As a solopreneur, you most likely have poured most of your funds into the company and have the sole responsibility of generating revenue. If met with an unfortunate accident or are incapacitated for some time, this can create a negative financial impact on your business â on top of hospitalisation costs. This sets you up for a tough road to financial recovery, more so if you have just started out without any protection.”
9. Online reputation risks are real, and need serious and proactive management
Roxana Nasoi in the article “Online Reputation Management Risks for Solopreneurs”:
“One of the most useful and dangerous environments is the Internet. Closely linked to it is the online reputation system, where names are built or destroyed in a matter of seconds. Experts at Cardinal Law advise:
âOnline reputation management might prove difficult for the solo-preneur in a world of constant competition. It is advisable that solo-preneurs and freelancers read the Terms of Services of every product they use and develop a ToS document of their own when working with clients, customers or other brands.
This is a great way to protect the intellectual property, as well as to defend yourself against angry clients or anyone out there who wants to trash your online reputation.â
Having a strong binding contract can prevent you from having any issues with a potential attack on your image. This aspect is vital and should be treated as such. Having a system for online reputation leaves no room for cutting budgets, while offering a comfortable legal protection.”
10. Be sure to cover your total monthly cost for health, life, and disability insurance
Gabe Nelson in the article “Transition From Employee To Solopreneur With Confidence”:
“When you go into business for yourself, a lot can happen to derail your progress. No matter how optimistic you are, itâs important to recognize and address potential threats proactively with appropriate risk management. In other words, you need to make sure youâre adequately insured.
A critical expense you canât afford to skip is health Insurance to protect your family from the financial ruin of excessive medical bills. If your spouse has employer-sponsored benefits, this is often the best choice. If not, there are other options.
Itâs also important to ensure you have adequate life insurance coverage in place. All too often, people let this slide when they become self-employed because theyâre accustomed to having the employer-based policy. As a rule of thumb, I recommend having five to 10 times your annual pay in life insurance before going out on your own. The policy you held through your job may be portable and easy to maintain. If not, get a policy in place and account for the cost in your budget.
Youâll also want to make sure you have disability income insurance. If you become disabled while employed, the insurance can soften the blow; however, many solopreneurs neglect to get coverage, leaving themselves exposed to significant risk. Look at the total monthly cost for health, life, and disability insurance, and be sure to include these costs in your transition expenses.”
11. Understand this truth – the existence of risk implies existence of opportunity
Keith Krach in the article “4 Ways Entrepreneurs Can Manage Risk”:
“From the earliest stages of a new business idea, risk and opportunity are inseparably linked. Entrepreneurs can make this connection when comparing their personal goals with possible entry points into the market.
Preliminary research will almost always yield insight on both sides, which is why startup leaders need to have an understanding of their industry.
Along with identifying opportunities, doing your research can ultimately help to mitigate and manage risk. The entrepreneur who closely observes consumer sentiment, for example, will have a better idea of how to steer clear of costly missteps. The same individual will also have a better frame of reference for what risks come with the territory.
Recognizing the many benefits that come from developing an understanding of the demands of the market can make a notable difference for new business owners. On the opposite end of the spectrum, trying to identify opportunities without risk can lead to less-than-desirable results.”
12. The best solopreneurs always have on hand a Plan B (as well as Plan C, D and E)
Joe Trammell in the article “5 Ways Entrepreneurs Learn to Manage Risk”:
“Research shows that, contrary to popular belief, entrepreneurs are not inherently risk takers. A study published in June by the Halle Institute for Economic Research found that people about to start ventures are not more tolerant of risk than others. The research found that entrepreneurs do, however, become more comfortable with risk over time.
Indeed, many entrepreneurs know that risk is inherent in launching a new business. They also understand that without some risk there is no innovation, achievement and reward. They donât see risk as a problem but as an integral part of creating something of value.
Successful entrepreneurs stick to the basic principles of risk management: They look for opportunities where if they fall short they lose only a certain value, but if they win they could stand to gain 10 times as much.
And the best entrepreneurs never bet more than they can afford to lose. They always consider Plan B (as well as Plan C, D and E) in case the current program doesnât work out as expected.”
13. Risks have two dimensions: likelihood of occurrence, and severity of consequences
Akira Hirai, in the article “What Kills Startups?”:
“Risk Management is the art and science of thinking about what could go wrong, and what should be done to mitigate those risks in a cost-effective manner.
In order to identify risks and figure out how best to mitigate them, we first need a framework for classifying risks.
All risks have two dimensions to them: likelihood of occurrence, and severity of the potential consequences. In a classic 2 x 2 diagram, these two dimensions form four quadrants, which in turn suggest how we might attempt to mitigate those risks.
Once we know the severity and likelihood of a given risk, we can answer the question: Does the benefit of mitigating a risk outweigh the cost of doing so?”
14. Working with newer technologies means there will be risks no one faced earlier
Tal Eliyahu in the article “Startup – The importance of risk management planning from day 1”:
“Many entrepreneurs use instinct (intuitive analysis) as the start in the decision process of managing risks. This is one way to start, and not a bad way indeed. However, for truly effective risk management one must look beyond experience and simple reasoning in making decisions that involve considerable risk.
New types of risks keep arising every day with the changing paradigm and this is especially true for startups since they focus mostly on new technologies. Working with newer technologies means there are going to be risks that no one faced earlier or has any experience with.
To manage these types of situations, there are many established standards within risk management frameworks. However, what startups require is simple.
You must start by establishing the context and then moving on to the risk identification, risk analysis, risk evaluation and finally the risk treatment process with monitoring and reviewing in the process as well as communicating the process to stakeholders.”
15. Risk management needs to be monitored to forestall future repeat of risks
Dragan Sutevski in the article “Risk Management Guide: What You Need to Know About Business Risk”:
“For most businesses, risk areas can be defined in different ways. But, as a basis to start you can use the following classification:
- The business risk in terms of the value that your business offers (products and/or services)
- The risk in terms of costs and revenue
- The risk in terms of customers
- The risk in terms of customer relationship
- The business risk in terms of distribution channels
- The risk in terms of some of the key resources
- Risk related to key partners for your business
It is not necessary that there will be a business risk in all areas that you will define. Also, the business risk in different risk areas will not be with the same intensity in all areas. Therefore, based on your business environment, on the industry in which your business operates and on the basis of your business model, you will need to determine in which of these risk areas there is a risk to bring undesirable effects for your business.
Because risk management is a dynamic process it must include the monitoring stage in order to provide appropriate elimination of that kind of risk in future.”
16. Every decision taken by a solopreneur has many hard-to-gauge risks attached
Ramesh Dontha in the article “15 Challenges Faced By Solopreneurs”:
“It is not easy being an entrepreneur or a solopreneur. There are a plethora of hurdles you face when you are starting your business from scratch. Solopreneurship differs from entrepreneurship majorly because the level of autonomy the business owner has and the burden that has to be borne by the solopreneur individually.
Since you are the sole inhabitant of the boat, you donât get any objective feedback on your performance or mistakes. As opposed to working with a team which is achievable with entrepreneurship, the solopreneur does not have that luxury thus may lack the objective feedback they need to effectively run the venture.
Risk and uncertainty should be synonymous to entrepreneurship. In case of a solopreneur, everything is being managed by a single person that further raises the stakes. The uncertainty combined with loneliness can be a deadly combination that a solopreneur has to deal with.
Every decision you take as a solopreneur has risks attached to it. Some find it hard to gauge the level of risk involved or to decide whether a given project is worth it or not. Since one person makes all the decisions in solopreneurship, they are bound to struggle with risk management stretching themselves too thin and not thinking actions through before taking them.”
17. Take calculated risks – and ensure your fallback plan is not to go back to a job
Sasha Seifollahi in the article “7 Effective Ways Young Entrepreneurs Can Manage Risk”:
“Managing risk doesnât always mean youâll have clear answers. When you own and operate your own business, you live daily with a certain amount of risk and uncertainty about your future. Calculated risk can lead you to your next big investor or a new audience.
Once you embrace that there are no guaranteed ways forward to the next level, you can evaluate risk based on what you can comfortably absorb if one risk doesnât pan out the way you hoped. Moving uncertainly forward is part of an entrepreneurâs job.
You drive the ship into uncharted waters by choosing the risks that make the most sense for your business. The proof of your decision comes after you look back on a risk you took that benefitted your business.
Do you have a job lined up in case your business doesnât work out? If so, you might want to make sure youâre seriously invested in your entrepreneur gig. When youâre âall inâ for your own company, youâll find more motivation to pursue the right risks. Your job as the CEO of your business is your job. Thereâs no time to play fast and loose with an idea that you donât believe in. You also donât want to risk everything to make it work, only to have nothing left if it bombs.
18. Risk-takers enable innovation and opportunity – and get a competitive advantage
Harriet Genever in the article “Why Entrepreneurs Should Take Risks”:
“Innovation involves changing how people do things. Combine that with the fact that customers have constantly changing demands and you have consistent opportunities for new business. It is about sharing and teaching what we know and putting new ideas into practice as a constant state of progress.
Business leaders accept risk as a cost of opportunity and innovation. They know it cannot happen if you will not accept the risk that your undertaking might fail. The level of risk may be lessened, however, if you make all possible calculations and evaluate which options are best before proceeding to the next step. The more clearly you can validate your idea or a specific direction, the more likely you are to succeed even if itâs risky.
Since most people tend to avoid risk, those who are brave enough to take risks already have a competitive advantage. Similar to the concept of a first-mover advantage, when most individuals stay away from risk, that means less competition for risk-takers. This means if youâve found a worthwhile opportunity, and no one else has jumped on it, youâre the only business reaping the benefits and communicating with customers.
So anytime youâre considering taking a risk, keep your competitors in mind. If you donât take the risk they may opt to do so instead. But as long as you understand the potential return, you can rest assured knowing whether itâs a worthwhile risk or not.”
So What Are Your Thoughts? Do Share!
This post is incomplete without your input. The community of solopreneurs would feel galvanized to hear from you … so do share your thoughts on this topic with us, in the comments field below this post.
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