How to Minimize the Risk of Starting a Business

Taking charge of the factors you can control when starting a business.

Starting a business can be a thrilling and rewarding experience, but it can also be daunting. With entering a new venture you are essentially creating from scratch, there are a lot of uncertainties and risks involved. Will people be receptive of your offerings? Will you be able to differentiate yourself from the competition?

While there is no way to avoid all the risk involved with starting a new business, you can do your best to maximize your chances for success. You can measure potential receptiveness (and make sure you are targeting the right market) through surveys, focus groups and other market research methods. You can study case studies concerning your industry and related products. And, last but certainly not least, you can make sure that you are positioned in a city with the most opportunity for the kind of business you are creating.

Before deciding where to locate your new business, it’s important to determine what kind of business you are creating. The optimal location for your business will differ depending on whether your business is a startup or a more traditional small business venture.

What’s the difference? A startup differs from a traditional business in terms of its:

  1. Design for rapid growth: it needs to be suited to meet the needs of a large market (think millions of people).
  2. Need for investors for funding, as opposed to loans/grants typically used in traditional small businesses.
  3. Need for an exit strategy.

Typically startups are tech companies, but they don’t necessarily need to be (nor is a new tech company automatically a startup).

With so many different components that go into startups, the best cities for startups differ based on the aspect that is most important to you. It should come as no surprise that the highest number of startups (per 100,000 people) and highest average valuations are in San Francisco, CA. However, San Francisco is the worst city in terms of the ratio of investors to startups. In this regard, Riverside, CA; Hartford, CT; and Kansas City, MO came out on top. In terms of determining where you should start your startup, you should explore the landscape (in terms of startups) of each city you are considering and weigh how valuable each factor is to you and your business. This will help you determine which city offers the optimal environment for your startup in particular.

On the other hand, traditional businesses require a very different landscape. Components that are important to consider when starting a small business revolve around factors concerning the business environment, access to resources and business costs. They include average growth of small businesses, accessible financing, labor costs, availability of human capital, average workweek length, cost of office space and the education of the population. In terms of these factors, the five best cities for starting a small business are Oklahoma City, OK; Austin, TX; Sioux Falls, SD; Missoula, MT; and Durham, NC.

When starting a business, unavoidable risks make it essential to take charge of factors in your control. One of the most controllable aspects is the location of your new enterprise and should be carefully considered.

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