Every business comes with its fair share of risks. That is simply the nature of the business world. However, certain types of business come with more inherent risks than others. If you are interested in starting up your own business and want to get investors, they may be scared away if your business contains too many high risk factors. While being high risk does not by any means indicate that you are going to fail, it does mean you may be facing an uphill battle trying to get your company off the ground.
High Risk Factors
When investors are deciding whether to invest in your company, they are going to look at every aspect of it. While some investors are more than willing to take a gamble, others are more cautious if you have one or more of the following factors at play.
- High rate of failure industry: Some industries are more prone to high turnover rates than others. For example, many restaurants fail fairly quickly because they are not able to differentiate themselves from the competition. Other industries fall in this category, and you should have a strong item in your business that sets you apart from the rest.
- Public image issues: While it may be legal to operate an adult entertainment company or a gaming site, some investors may be wary of giving you money because they are concerned about their own image.
- Everyone is a first-time business owner: If you have just one person on your team who has successfully run a business before, then it can be a lot easier to get investors. However, if this will be everyone’s first time operating a business, then more skepticism will be associated with your team.
- Niche industries: You may have a completely unique idea for a business, but if it is determined that there is not a whole lot of room for growth, then investors will be skeptical. People want to know that there will be a high rate of return on their investment.
- Businesses that require a ton of money upfront: Every business needs money upfront, but certain industries require large investments before people even know if it pays off. For example, if you are hoping to start a new car company, than a lot of money needs to go into designing and testing the new vehicles. A bunch of money gets paid before it is even seen if the public wants the product.
This does not mean you should avoid starting a business associated with any of these factors, but it does mean you should be prepared to address them to investors. You should show that you are willing to address a challenge rather than shy away from it.
Examples of High Risk Businesses
There are two areas of high risk to be aware of: the gray zone and red zone. The gray zone refers to businesses that are in between being a safe bet and high risk. The red zone involves businesses that are definitively high risk. These are some examples of industries that often fall in the gray zone:
- Inbound telemarketing
- Short term companies
- Custom items
These are some examples of businesses that would likely fall into the red zone:
- Foreign-country based businesses
- Supplement and online pharmaceutical websites
- Debt collection agencies
- Advance booking and travel agencies
- Gambling and gaming sites
- Adult entertainment
- Magazine providers or other businesses that require long-term commitments
If getting into any of the above mentioned industries or some other high risk venture is what you are passionate about, then it is certainly worth pursuing. However, you need to be ready to face certain challenges. Understand what you are getting into so that you are not blindsided by any obstacles you will need to circumvent.
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