Uncertainty is a risk that businesses face that can’t be predicted or measured. It can be caused by various factors such as technological changes, natural disasters, and new regulations. These changes can affect the way businesses perform their operations.
In 2020, businesses were hit hard by the effects of COVID-19. The sudden shifts in the economy and sectors caused by the pandemic had many companies struggling.
Although pandemics are rare, businesses have always been dealing with uncertainty. For startups, for instance, operating under financial uncertainty can be a challenge since they still haven’t established their business model. Also, since venture capital and investors usually provide the most funding for a startup, economic disruptions can limit their access to capital.
It’s not always possible to predict the impact of economic changes on startup funding. During the 2008 financial crisis, venture capital decreased by 13 percent in the US.
Despite the pandemic, a record number of companies known as unicorns emerged in January. There were 23 new businesses from the US that joined the company’s board. The success stories of startups and companies during the pandemic should warn businesses about the importance of having the right resources.
There are different levels of uncertainty in entrepreneurship.
Level 1: Predictable Future
Level one uncertainty is considered a relatively accurate prediction of a company’s performance. It can be made based on the various factors that affect a company’s operations. However, it can also be triggered by regular business events such as deciding on a franchise location or investing in a stable market.
With a predictable future, business owners can confidently carry out their operations without worrying about the possibility of unexpected changes.
Level 2: Alternate Futures
Level two uncertainty is considered to be caused by discrete events that are mutually exclusive. For instance, if a company’s legal requirements change due to legislation, this level of uncertainty can affect its operations.
Although it’s impossible to predict the exact outcome of a situation, decision analysis techniques can help businesses make informed decisions. They can then use their level of risk tolerance to evaluate the various advantages and disadvantages of different strategies.
Level 3: Range of Futures
Level three uncertainty is different from level two in that it doesn’t allow businesses to predict the exact outcome of a situation. For instance, they can’t determine the precise value of a product or service because they can’t identify the discrete factors that affect its sales.
Level 4: True Uncertainty
This type of uncertainty is rare and tends to decrease over time. Even analysis can’t come up with a definite range of possible outcomes.
This type of uncertainty is usually triggered by major economic, technological, or social disruptions. For instance, the travel industry might experience level four uncertainty due to the pandemic.
Focusing
It can be hard to decide which activities to focus on during uncertainty. However, by recognizing the things outside of your control, you can minimize your stress levels. One of the most critical steps that business owners can take to manage their operations is maintaining a steady cash flow. This can be done by ensuring that their current clients are satisfied with their services and products and negotiating with their vendors and suppliers.