Risk and Reward

BY MATTHEW D. MOHR

Almost every business owner realizes his or her investment is at risk every day. An unexpected turn of the economy, a product recall, competitive challenges, employee theft or other unfortunate events can cause a business to crash, resulting in losses or a total loss to the business owner. Understanding this risk is part of commerce and can lead to sleepless nights and worry, but business risk differs from a gamble.

Business risk involves assessing opportunities, placing faith in people, products and the marketplace, and making personal efforts to positively affect the outcome. Naturally, the desired outcome is good profits, which result in a positive return on investment and cash returns. For example, an entrepreneur is offered a nice piece of equipment to improve production for $10,000. The person has to decide if it fits the business and will generate a positive cash flow after the $10,000 expenditure. The decision to invest in the equipment might also come with the realization that the owner needs to take time to learn how to operate it.

Gambling, on the other hand, involves assessing a situation, placing a bet while hoping (or praying) that luck will lead to a winning choice, while having little to no ability to influence the outcome.

One of the great thrills of owning a business is taking calculated risks and working to create a positive outcome. Of course, with the thrill of success, failure is always possible. Most successful entrepreneurs understand well the principle of risk, even though each person has a much different level of tolerance for risk and a much different willingness to put in the work and hours to get a desirable outcome.

A business owner takes risk to earn a profit — nothing like a gambler. Any business owner who constantly gambles his fortune is more likely to end up broke than successful. PB

Matthew D. Mohr CEO, Dacotah Paper Co. Fargo, N.D. mmohr@dacotahpaper.com