Yes, the focus of this Dynamic Business blog is to help you reduce risk in your business and while you are at it to eliminate wastage and maximise profits. However, reducing risk does not mean that you should not take risks.
I advocate the umbrella concept of business protection. An umbrella can’t stop the rain from falling, but it will protect you in a storm. In the same way, protection such as income insurance cannot prevent life’s storms, but it does make sure you and your business can survive.
The key is to not eliminate risk, but to reduce risk and plan for the worst-case scenario.
Risk-taking is an integral part of business and life, particularly in small business, but so few people know how to manage it properly.
The most intelligent risks are those where the potential downside is limited, but the potential upside is virtually unlimited or a big leap ahead.
Follow these three steps to determine whether or not to take an intelligent risk:
1. Establish what the potential downside is. If you do not have the time to determine what the downside is, pass on the opportunity.
2. Ask yourself and expects what can be done to reduce the risk. Although it may appear so at the time, risks are seldom fixed. If you look at the opportunity creatively and objectively, there are often many ways to decrease the downside and reduce the risks.
3. Develop a contingency plan. Start by asking, “If the worst were to happen, what could I do to recover?” Then develop a step-by-step back-up plan.
A friend of mine who was a parts manufacturer was offered a large government contact. The risk in this was that the company would need additional capacity that was going to cost over $400,000. While the contract was lucrative and expected to last for years, it contained a clause stating that it could end with 90-days notice.
After carefully reviewing the situation, the company decided to reduce its risk by subcontracting with a competitor to make some of the parts. By sharing some of the profits, the risk was substantially decreased.
Don’t be afraid to go out on a limb. That’s where the fruit is!
Do you have any stories of risk-taking in your business? Did it go sour or was it a great success?