9 Types of Risk in Entrepreneurship + How To Manage Them

Some element of risk in entrepreneurship is inherent in running your own business. Risk is so intrinsic to entrepreneurship, in fact, that the word is part of Merriam Webster’s definition of “entrepreneur.”

When you start your own business, you accept uncertainty in exchange for potential profit and growth. Lexi Hensler, founder of weighted stuffed animal brand Hugz, compares it to cliff jumping on an episode of Shopify Masters. “Entrepreneurship is jumping off a cliff and building a parachute on the way down, but you just have to take those first steps,” Lexi says.

Here’s a look at the different types of risk in entrepreneurship, and the ways successful business owners overcome them to thrive long-term. Below, you’ll also find insights from ecommerce entrepreneurs.

Types of risk in entrepreneurship

• Market risk
• Financial risk
• Operational risk
• Strategic risk
• Technological risk
• Product risk
• Reputational risk
• Economic and environmental risk
• Legal and regulatory risk

Entrepreneurs may face financial risk, market risk, competitive risk, and technology risk, among other types. Here’s more on some of the most common business risks that you may encounter as you scale up your store operations:

Market risk

One of the risks of entrepreneurship is that you could launch a product that never finds an audience. Or you could enter an established market that is disrupted by innovation. Customer demand rises and falls, and new trends can influence the market at a moment’s notice. 

Market research is an essential step to understand the consumer and competitive landscape before investing personal assets in or receiving investor capital for your business. 

Financial risk

Whether you’re investing your own money or someone else’s, there’s no guarantee that your business funding will generate a return—or even be paid back. One risk in entrepreneurship is that if you can’t sell enough products, or if unexpected expenses pop up, you and your partners may lose your investment.

To best approach this risk, offer the most realistic financial projections you can when approaching investors. Even if you’re not borrowing money from third parties, financial projections can help you better understand and plan your company’s budget.

Operational risk

You’ll likely encounter numerous operational risks in the day-to-day functions of your company. Supply chain disruptions, production failures, and human error are among the many circumstances that can derail business operations. Keep this in mind as you hire your team, as human talent is key for reducing these types of risks.

Strategic risk

Your choice to enter a new market, launch a new product, or pursue a merger or acquisition might end up yielding losses rather than gains. 

Careful planning can help you make smarter, more informed business decisions, so perform your due diligence before embracing ambitious new strategies. Some entrepreneurs like to create a strategic business plan at the start of their ventures so they can refer back to it at each benchmark. 

Technological risk

With so many business operations now conducted online, another common risk in entrepreneurship is technological risk, including data breaches. For instance, your ecommerce store could crash due to too much site traffic, or a hacker could steal your customer data. Carefully vetting each provider in your tech stack and following cybersecurity best practices can help you avoid these risks.

Product risk

When bringing a new product or service to market, there’s always the risk that it won’t meet customer needs or expectations. Extensive market research can improve your odds of finding a product-market fit, and quality control can help ensure the goods you ship will only bolster your business’s reputation.

Reputational risk

Many of your potential customers will research your company before choosing to do business with you. According to a 2026 survey by Clutch, 96% of consumers regularly check reviews before making a first-time purchase. And 47% of consumers always check reviews before deciding to buy.

Some common factors that can damage your store’s reputation include poor product quality,  customer service complaints, and inaccurate product descriptions. Account for these reputational risks and develop a strategy to combat them when drafting your business plan.

Economic and environmental risk

Not all risks in entrepreneurship are preventable, no matter how well your internal processes run. Factors outside of your control, like natural disasters and global economic downturns, can negatively impact your business. Certain types of business insurance can help you recover expenses in the wake of unforeseen events.

Legal and regulatory risk

Some regulated industries (like alcohol, cannabis, and healthcare) face additional scrutiny under local, state, and federal laws. Regulatory requirements and commerce laws can change, meaning compliance will be an ongoing process. 

There’s also the risk of lawsuits—from customers, suppliers, competitors, or the government itself. Some of the most successful companies regularly face litigation, which they address by setting aside money for legal fees. Liability insurance can also help protect you from potential losses related to professional or product liability.

How risk-taking can benefit your business

• Promoting first-mover advantage
• Pioneering new ideas and approaches
• Facilitating personal growth

A willingness to take on calculated risk is part of what it takes to be an entrepreneur. Assuming risk can have upsides, too. Here are four ways that taking on risk might benefit your business long-term:

Promoting first-mover advantage

Taking calculated risks lets you explore untapped markets and capitalize on emerging industry trends. This may lead to what’s called a “first-mover advantage,” where a company establishes a dominant position before competitors enter the market. By the time other companies catch up, you’ve already built a reputation among your target audience.

Take hair tools brand T3. When Dr. Julie Chung launched the brand with her husband Kent Yu in 2004, hair dryers sat in the electronics aisle for low prices. Dr. Julie wanted to position them instead as premium beauty products..

“I knew the psyche of the woman, consumer, and the shopper because I myself was an avid shopper,” Dr. Julie says on Shopify Masters. She thought that if she could make her hair dryer beautiful and craft messaging that was similar to that of the beauty products she was familiar with, her dryer would sell. 

“It was a hunch,” says Dr. Julie. “There was no way for us to test this out: We certainly didn't have the money to have focus groups or to really figure out what to do.” The gamble paid off, and T3’s Featherweight hair dryer became the first premium hair tool sold in Sephora. 

Pioneering new ideas and approaches

Some of the best new ideas emerge from high-risk endeavors. 

Take the cashmere clothing brand Naadam. On Shopify Masters, Naadam founder Matthew Scanlan discusses how he certified the first “cradle to cradle, sustainable, 100 percent cashmere” by partnering directly with Mongolian herders. This supply chain strategy allowed Naadam to keep their prices low while still selling ethically sourced products.

This innovation in the cashmere industry stemmed from enormous risk: Matthew took out a multimillion-dollar business loan with a high interest rate and family assets as collateral. Then he got to work.

“We wired all the money to a bank account in Mongolia,” Matthew says. “I showed up at the bank in Ulaanbaatar and we walked out with $2.5 million in cash. It was 32 plastic shopping bags; 65 pounds of money. It filled the entire backseat of a land cruiser.”

Matthew drove 24 hours into the Gobi Desert. “Over the course of three weeks, we bought 60 tons of raw cashmere and filled 16 tractor trailers with raw material, which we then trucked back to Ulaanbaatar to begin processing,” says Matthew. “That's how we got into this business.”

Facilitating personal growth

By taking calculated risk in entrepreneurship, you can build your competence and leadership skills. If your endeavors succeed, you’ll be better positioned to steward them to new heights. If they fail, you have valuable experience to draw upon for next time.

“Every day that I do something hard, I get to the next place. And then the muscle gets a little stronger and I can do something bigger,” says Ellen Bennett, founder of kitchen brand Hedley & Bennett, on Shopify Masters. “But it was because of all those little things I did that made me willing to leap to the next thing.”

How to manage risk in entrepreneurship

• Start with a business plan
• Conduct detailed market research
• Diversify your revenue streams
• Invest in cybersecurity
• Purchase business insurance
• Network within your industry

According to the U.S. Bureau of Labor Statistics, upwards of 25% of American businesses fail within the first year, depending on geographic region. But with careful planning and conscientious management choices, you can improve the odds of your company’s long-term survival. Here are a few steps entrepreneurs can take to mitigate risk:

Start with a business plan

You can anticipate and avoid risk in entrepreneurship by drafting a business plan. A thorough one will illustrate to lenders—and to yourself—that investing in your company is worth the risk.

“I learned early on that the numbers don’t lie,” says Jeff Segal, founding partner of wine business Domestique. “It’s easy to get excited about a business idea, but then look at the underlying math of it and realize it doesn’t work. So it’s really important to get numbers down as soon as possible, and see if they make sense.”

Consider using a business plan template to guide you through the process. Create financial projections that outline your calculated investment, and how much you need to sell to recoup those sums. This can help you mitigate financial risk.

As part of your business plan, you’ll also outline how your business will function from an operational and logistical perspective. This can help you spot and prevent potential operational risks early on.

Conduct detailed market research

Conducting market research forces you to confront the current realities of the market and any associated risks. You’ll learn about both your competitors and your base of potential customers. Market research gives you a better understanding of whether or not your product will find an audience.

For entrepreneur Nancy Twine, founder of clean haircare brand Briogeo, detailed market research is what gave her the conviction to leave her stable job on Wall Street. 

“I knew that if I was going to leave my career in finance to start my own company, I wanted to feel really good about what I was going to embark on,” Nancy says on Shopify Masters. “I wanted to make sure that I was launching in an industry that was growing, and that had a large addressable market so that I had people to sell my products to.”

Nancy leaned on trend reports to validate that the category she wanted to build in would have staying power. “I launched a clean beauty product line before the clean beauty movement had really taken off,” she says. “So much of that early research I was doing was leveraging trend reports and insights to make sure that I was doing something that was smart and that was going to have longevity.”

Diversify your revenue streams

Selling different types of products, or using multiple business models, expands your pool of potential customers. It also reduces your vulnerability to market fluctuations or unexpected disruptions. If one market or revenue stream dries up, you’ll have others to fall back on.

Take the chocolate brand Taza. The company diversified their revenue streams after experiencing what cofounder Alex Whitmore called “a crisis period.” 

“Demand for our brand was really up and down, and we were trying to figure out how to stabilize the business,” Alex says on Shopify Masters. Alex and his cofounder Kathleen Fulton decided to explore co-manufacturer and private label relationships. They also evaluated business-to-business (B2B) models in which they’d sell chocolate as an ingredient to other companies.

“So it wasn't just wholly dependent on our own brand,” says Alex. “It basically spread out the risk and spread out the opportunity across other brands as well.”

Invest in cybersecurity

Almost half of small and medium-size businesses have experienced a cyberattack, according to a 2025 Mastercard survey. These attacks can be devastating: Mastercard found that 1 in 5 of the companies that experienced one then filed for bankruptcy or closed their doors.

In addition to safeguarding your own information, running a business means keeping sensitive customer data safe. Investing in firewalls, antivirus software, data encryption, and cybersecurity training for your employees can help protect your business.

Look for an ecommerce platform with built-in security features that meets established security standards. Shopify comes with SSL certificates and is PCI compliant, which means it ensures secure payments.

Purchase business insurance

You can protect your business from unforeseen events like lawsuits and property damage with appropriate insurance policies. 75% of small businesses have business insurance, according to a 2026 Ergo survey of 501 small companies.

“There is no one-size-fits all option with business insurance,” says Lynne McChristian, a senior instructor at the University of Illinois Urbana-Champaign and the school’s director of the Office of Risk Management and Insurance Research. “It comes down to identifying and prioritizing your risks.”

Network within your industry

As you explore risk mitigation, your fellow entrepreneurs may be among your most valuable assets. Cultivate good relationships in your industry, and don’t be shy about asking for advice. Other entrepreneurs may have faced the same risks you’re looking at now. Networking can also do double-duty as marketing for your business. 

“I'm always seeking guidance,” says Dan Demsky, founder of clothing brand Unbound Merino, on Shopify Masters. Dan’s a member of entrepreneur communities like Entrepreneurs’ Organization (EO), Young Presidents’ Organization (YPO), and Founders Club. “It just exposes you to the people who have figured that thing out, whether I have a leadership challenge or an operational one.”