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What No One Ever Tells You About Starting Your Own Business

Low Risk, High Reward: Starting and Growing Your Small Business With Minimal Risk

Low Risk, High Reward

Starting and Growing Your Small Business With Minimal Risk

By Bob Reiss
With Jeffrey L. Cruikshank

Low Risk, High Reward is an outstanding introduction to starting a small business. The book starts out with a well-thought-out list of ten personal attributes an entrepreneur should have. Reiss explains why each personal attribute contributes toward likely success. Reiss puts passion for the endeavor at the top of the list, explaining that not only does it sustain you during bad times, but that it is also the "ultimate" sales tool.

Reiss goes on to discuss skills entrepreneurs need, including salesmanship and communication ability. He includes decision-making as a key skill, pointing out that entrepreneurs who act quickly have the edge. He favors making business decisions intuitively, providing you have experience and knowledge which gives you valid intuition.

He points out that risks aren't the same for everybody and uses the example of a gymnast on a balance beam. He writes, "I'd sure rather see a young Olympic gymnast on a balance beam than me. The difference, of course, is preparation and ability. Risk is variable, depending on who's taking it." The lesson is that experience and personal contacts lessen risk.

One of my favorite chapters is "Numeracy" which briefly discusses "thinking in numbers." Reiss briefly mentions product cost analysis, break-even analysis, and cash-flow analysis. He does an especially thorough job discussing cash flow, which includes a nice cash-flow example in an appendix. Reading this is well worth any new entrepreneur's time. Yet, many new business people won't read it until after they have some bill due, and find out, despite doing well, they don't have the cash to pay the bill! Then, cash flow will become important to them. So, put a bookmark in that appendix, and remember it's there!

Low Risk, High Reward includes an appendix giving very complete details of one of Reiss's company's experiences with TV Guide Trivia Game, which is used as a case study at many business schools. It's well worth reading. But I'm not a big fan of case studies, which suffer from at least two serious problems. First, the selection problem. Want to find business cases where acting fast and capturing market share, despite losing money, works? No problem! We can find cases to support our theory. Want to show that acting fast and capturing market share while losing money leads to failure? Again, no problem! No matter what the business philosophy, we can find supporting cases. Second, is the attribution problem. What we attribute success or failure to may not, in fact, be correct at all.

I think Reiss's TV Guide Trivia Game is a good example of a low financial risk endeavor, but also an endeavor with a high likelihood of failure. And, I wouldn't call it high reward. Maybe, moderate reward is more accurate. Reiss seems to have what might be called the "mail order" mentality (I don't mean this as derogatory in any way. In fact, from what I've read, Reiss sounds like a man of very high integrity and honor) . By this, I mean the philosophy of tossing a relatively low-priced, consumer product out there at low financial risk. Then, see if it flies. If so, great, make some money. But, if not, oh, well. You don't lose much either. This probably comes from Reiss's vast experience in the game industry, which sort of works like that.

Low Risk, High Reward has excellent advice about managing risk, such as controlling inventory, turning fixed costs into variable costs, partnering intelligently with others, piggybacking on a big name, etc. But, I think a few key points are missing. For example, is the product your company creates really useful? In particular, I think many of the lowest-risk, highest-reward companies are companies selling business-to-business products, in particular, products which can be objectively shown to have great value to the purchasing company, either saving them or making them money. This type of analysis is lacking in Low Risk, High Reward.

Reiss writes about the importance of customer satisfaction and the need to get reorders and follow up sales. However, what is the likelihood a board game buyer will really be interested in your other games? Every Christmas it seems a new or different toy or game company has the hottest, must-have toy or game! And the other game companies struggle for profitability. That seems a tough way to build and grow a business.

Reiss writes about what he knows and gives you his best business advice. It's well worth reading, regardless of what kind of business you start. Reiss's advice is applicable to any kind of business. It should help you reduce the relative risk of doing whatever it is you are trying to do. However, it won't steer you away from inherently dangerous, high-failure prone types of businesses. I personally feel steering clear of such businesses is one of the best ways to reduce your risk. So, I'd also give some consideration to what type of company you contemplate starting, the likely profit margins, revenue per sale, created value of the product, and industry competitive factors.

I always shake my head when I read about a successful restaurateur who failed at his first two restaurants, then succeeded, and sold his third restaurant for a lot of money. Yep, he's mastered that industry! He gets bored and starts a fourth restaurant. Despite twenty years industry experience, he fails and loses a lot of money. No one ever told him not to place his balance beam a hundred feet above a concrete floor and in the path of huge gusting winds!

Low Risk, High Reward: Starting and Growing Your Small Business With Minimal Risk
Low Risk, High Reward
Starting and Growing Your Small Business With Minimal Risk

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