Are you an entrepreneur grappling with the decision-making process when it comes to new ventures? If yes, then this blog post is for you. We are all guilty of chasing the next big idea only to find a dead end of wasted time and money. Understanding how to effectively allocate resources, time, and assess potential risks is essential for successful entrepreneurship. Here’s a step-by-step guide on how to approach this.
The Cost of Chasing the New
As entrepreneurs, we are often drawn to novelty and the prospect of starting new ventures. However, the pursuit of new ideas is not without costs. It requires a considerable investment of time, money, and attention. I vividly remember my own “truck story”, a classic example of how investing in new things can come with a hefty price tag and distract you from the primary goals of your venture.
The Three Horizons of Money
In order to manage these costs effectively, it’s helpful to use a framework known as the ‘Three Horizons of Money’. This framework helps entrepreneurs make strategic decisions about where to invest resources.
Focuses on defending and expanding your current business. It involves allocating about 70% of your budget to strengthen your established operations, earn more customers, and increase efficiencies.
Revolves around investigating emerging business opportunities. Here, you allocate about 20% of your budget to explore ideas that can drive alternative revenue streams.
Is about seeding future businesses. This horizon is where you allocate the remaining 10% of your budget to innovative ventures and fresh initiatives that don’t yet exist in the present.
Ansoff Risk Matrix: A Tool for Risk Assessment
The ‘Ansoff Risk Matrix’ is a powerful tool that can help you assess the risks associated with each decision. It consists of four quadrants – Market Penetration, Product Development, Market Development, and Diversification, each carrying different levels of risk. For instance, Market Penetration is the safest option as you are expanding sales of an existing product in a known market. Diversification, however, is the riskiest as it involves launching an unproven product into a new market.
Firing Bullets, Then Cannonballs
It’s crucial to test the waters before going all in on a new idea. The principle of ‘fire bullets, then cannonballs’ proposes that you should first take small, low-risk actions (bullets) to validate your idea before committing significant resources to it (cannonballs). This way, you’re building a culture of taking calculated risks.
Embrace the Experimentation Mindset
Finally, as entrepreneurs, we must embrace an experimentation mindset. This involves contemplating your idea, building a minimum viable product (MVP), creating a test website with social media tie-ins, and actually trying to sell it. This hands-on approach helps to validate your idea and assess its viability before scaling it up.
In conclusion, entrepreneurship isn’t a binary process. It’s a balance between focusing on the current business while also fostering new ideas. By understanding the Three Horizons of Money, using the Ansoff Risk Matrix, firing bullets before cannonballs, and embracing an experimentation mindset, you can effectively pursue new ideas, manage resources, and navigate the risks in your entrepreneurial journey.
Related Article: The Ultimate Catalyst for Your Business Success
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