" If you’re interested in any market you should be prepared to look at your risk and balance the risk… Once you manage your risk, there’s no market you shouldn’t be able to enter." - William Addo
Risk is about opportunity as much as it is about handling what goes wrong. That means ensuring that whatever happens, you live to fight another day. That’s what William Addo has learned in the Nigerian and Ghanaian markets. Proper risk management allowed him to weather terrible currency deflation in Ghana as well as a difficult 10 years getting started in Nigeria.
The result has been that he has introduced numerous home products in Ghana and become a household name. Being smart, patient, and taking the right kinds of risks has allowed him to thrive in spite of these difficulties. Here’s how William Addo did that.
Managing the Risk of a New Product
William Addo takes several factors into account when introducing a new product. If the currency is experiencing fluctuations, he needed to ensure his products could remain profitable. When that wasn’t possible, he had to simply put new products on hold until the currency stabilized.
Teddy Ruge, a member of the Ugandan diaspora, has managed to establish three successful businesses in Uganda in large part by taking risks. Like William Addo, he understands that you’re initially driven by enthusiasm, but that you need to be prepared for reality when it comes.
The biggest lesson William Addo learned here is to never take on a new product which could bankrupt the company if it fails. The potential returns simply don’t warrant that risk.
So how much should you be willing to risk? William Addo’s rule of thumb is to only risk losing an amount of money you would be capable of paying off within a few years. For example, say you have $100K to start. You could spend 30K on a product. If you have to repay the 30K, it’s not going to be too difficult. But, if you had invested 70K, repaying that would be a very serious challenge. Then, always be sure to add about 10% over cost for marketing that product.
He also accounts for enough time to give new products a fair chance at success. He gives his products a year, ensuring he has the resources to survive that year regardless of the outcome.
There’s also the question of your own psychology about a product. Before a product is introduced, you’re almost always going to be quite optimistic. However, obviously you’re not always correct. You can feel you have the best product, but your feelings, the analysis, and market research are not always going to lead to success.
To protect against the risk of being too overconfident, William Addo ensures every product that comes out has been confirmed by at least 10 experts. They give their approval, the product goes ahead. If there’s any issue, it can be sent back to the production lines.
This helps make sure William Addo always maintains perspective on his own products and doesn’t convince himself of something he wants to be true.
Learning When to Take Risks
There are several important questions to ask yourself about risk:
- Will it sell?
- Is the market ready?
- Is the market growing fast enough?
- Are currency fluctuations a risk?
- Are competitors going to be able to force you out?
- Can your team survive the strain?
- Will it make a profit?
For lots of entrepreneurs, risk isn’t about what you get if you’re right, it’s about how you adapt when you’re wrong.
We’ve seen that they take risks selectively.
It’s not a choice between taking risks or playing it safe. Rather, as William Addo and Teddy Ruge show us, you can balance risks to make sure no matter what happens around you, your company can survive and you’ll be there to grab the next opportunity.
Your job: to assess your risk.
Review the 7 types of risk mentioned above and think about your business or business idea. What are the big risks? What’s the worst case scenario? What if you’re wrong? And importantly, how can you find out now, before it’s too late?
If you’d like, reply to this thread, describe your business and share the risks you feel are most relevant.
Can you relate to the stories we told here? How is your experience different? We’d love to hear from you. Your questions and comments are what will help us make better lessons in the future.