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Learning Business Tradeskill: Minimizing Business Risks

Can't Summit if We Don't Survive...

Can’t summit if we don’t survive…

Business tradeskill is a package of 5 separate skills:

  1. persistence
  2. facing the facts
  3. minimizing the right risks
  4. learning by doing
  5. grasping numbers

Today, let’s talk about minimizing the right risks.

Enter “business risk” as keywords for a web search today, and we’ll return lots of results that have flavors of risk. We’ll read bankers, insurers, government regulators, and consultants who will tell us how to minimize the uncertainty, unpleasant possibilities or danger of doing just about anything. Then we’ll read about the consultants and authorities who tell us that “real entrepreneurs” love risk; they embrace it; they make it part of their entrepreneurial lifestyle (by the way, there is no entrepreneurial lifestyle). By the time we’ve looked at the second or third page this stuff we might be forgiven for assuming that we’re either (a) much too ignorant to have any qualifications for running a business, or (b) much too afraid and conservative to have any hope of business success.

Fortunately, we can ignore both of those emotion-driven misconceptions. They don’t apply to us, and they have nothing to do with the business tradeskill of minimizing the right risks. Please notice that I didn’t use the word “eliminate”; I used word “minimize”. Bite size risk exists in every business; if it doesn’t, the business isn’t going to explore, change, and grow. The right risks are the flip side to increasing sales, improving products or services and building our 100 year company (in a separate post we’ll talk through the benefits of taking long view). We many never learn to love them, but we can and must learn to live with them. So let’s learn about making risks small. Small means that if our latest good idea goes south, we can still achieve the two most important goals of any business: survive, and make a profit.

“I learned to embrace risk, as long as it was well thought out and, in a worst-case scenario, I’d still land on my feet.” Eli Broad

As businesses are born and grow there are several common and repeatable bad things that can happen. Today, let’s focus on a common startup risk: not being able to identify customers. We’ll use that common risk to work through four things we can do to minimize business risk.

1. Uncover and Describe Business Risk.

We’ll keep it short: one phrase amplified by a two or three sentence vignette.

Not finding customers: Your business concept (and perhaps your business customer) described your target market and may even have described your typical customer. But when you released some teaser ads, offered a freebie, and spread the word to everyone you knew, nobody responded.

2. What’s the Worst That Can Happen?

That risk we developed above… let’s put it to good use. Let’s describe the worst that can happen. Not just the risk itself, but the cascading effects, as far downstream as we can see them. Here’s the second reason why this tradeskill needs nurturing; it takes experience to imagine your way through a series of “if-then” circumstances, and it takes some personal courage not to stop when the implications become dire.

When you can’t find customers:

IF no one responds THEN no “interested” list.

IF no “interested” list THEN no pre-qualified customers

IF no pre-qualified customers THEN low sales at launch

IF low sales at launch THEN low market share AND no buzz (free publicity)

IF low sales at launch THEN low revenues AND negative cash flow

IF low market share AND no buzz THEN vulnerable to competition

IF low revenues AND negative cash flow THEN weak financial position

IF vulnerable to competition AND weak financial position THEN survival in doubt

The worst that can happen is that you’ve put your company in jeopardy, and you’re short on time and resources to try again.

3. Is There Another Way?

For this “worst” we want to figure out a work-around. Sometimes it’s very simple.  Here are two or three workarounds for our example.

First, as soon as we sense that our target market isn’t responding to our overtures, we’ll start asking “why”? Now, we could spend a lot of time answering that question. Or we can find just one potential customer and ask how they communicate with people like them.

If the customers aren’t coming to us, we can go to them. We could find someplace where our potential customers hang out and buy a few of them a coffee or beer in exchange for their input. We’ll grab a napkin, doodle our offering on it, and see if someone grabs the pen. (That’s the guerrilla marketing equivalent of a focus group.) At the very least, we’ve gotten some product feedback. Then we can ask them what would keep their attention for the x weeks/months until product launch.

Sometimes, though, we have to think differently. Some people talk about thinking “outside the box”. I prefer to think about “changing the rules”. For almost everything we do in business there are accepted standards, best ways of doing it, and the way we learned in school. Changing the rules means putting standards, best practices and book learning to one side in favor of “something else”.

For instance, who knew you can sell magazines by putting a picture of a scared mutt and a pistol on the cover?

National Lampoon Magazine Cover

National Lampoon Magazine Cover

I’ve learned that there’s almost always “something else”, if we’re sufficiently desperate and sufficiently committed. Sure, being creative helps… but being highly motivated helps a lot more.

4. And the Backup Plan is…

As business people we should be the world’s greatest egg basket buyers, because we never want to put all of our business eggs in one of them. I know… every business encounters that one situation where you have to bet the business. But minimizing risks is all about making sure that doesn’t happen more than once in a long, long time. The backup plan is our second line of defense, after ensuring that the worst that can happen won’t sink the business.

A backup plan is not an alternative; it starts at the point when we know that things are going wrong. The plan assumes we’ve wasted time and money, exasperated our staff, tested our investors’ patience and and possibly annoyed our customers. We’re in a spot; not only have we not achieved the original goal, we have to work our way out of the mess we’re in today. A back-up plan assumes that we have less money, talent and time to work with than when we started. A back-up plan also assumes that we may have to undo some what we’ve already done because it’s not working and needs to be scrapped. (I’ll write more about backup plans in another post, because there’s almost nothing about it on the net, or in standard business texts. Go figure.)

We ought to sketch out our back-up plan right after we’ve uncovered the risk. It doesn’t need to be complete or detailed… just enough to make sure there are alternatives. If the exercise isn’t going well it’s a sure sign that the risk is bigger than we thought.

What Can Happen When Minimizing Business Risk Becomes a Habit?

If we follow this 4 step approach to minimizing the right business risks, we find ourselves developing some remarkable qualities.

First, we come to see that the world isn’t as scary as we previously thought. We’re not blind optimists anymore and we don’t count on success. We’re becoming more realistic and we understand that we’ll be successful, but perhaps not with the first or even second plan. (You remember persistence; you can see why it’s so important.)

Second, we take a more matter of fact attitude towards bad news. By the time we’ve finished hearing bad news we’re already deciding what to do next. That calmer approach infects the people around us, and even reaches our customers. (I can tell you that your accountant will feel better. Great accountants are like bartenders; they’ll listen to bad news and commiserate. Believe me, they’ve heard it all.)

Third, because we take the time to work through those four steps for more and more of our great ideas, we look smarter and feel smarter. It’s surprising how today’s most brilliant inspiration withers under the harsh glare of tomorrow morning’s self-critical exam. And that’s a very good thing.

Finally, as we make minimizing business risks a habit, our thinking becomes automatic and then almost subliminal. We find that we’ve stopped actually writing it down, stopped even thinking in five steps. We just do the right thing, time after time. That’s the mark of truly learned tradeskill, the unconscious competence that saves time, saves effort, inspires confidence in everyone around us… and honestly, makes us a bit more humble.

If all this still sounds daunting, I have one last idea. I recommend talking to a soldier or Marine, an Iraq or Afghanistan veteran, a master sergeant or lieutenant. Ask them about their patrols. If you’re patient you’ll eventually hear tales of missions gone right, and missions gone wrong where improvisation and persistence were the keys to survival. You won’t be able to use their experience, but you’ll do very well indeed to copy their approach and attitude.

What decisions do we need to make? Let’s start practicing this essential business tradeskill right now, by taking a small risk and minimizing it. And another. A little larger one, now….

Honestly, I need to say this again; just because I wrote, and you read, this post doesn’t make either one of us one bit better at minimizing the right risks. We’ll have to learn by doing, one quality at time. No substitutes.

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2 Comments

  1. 4 and 5 skills are interesting! That ‘National Lampoon Magazine Cover’ made be bark in laughter!!!

    • Chris Chadbourne says:

      Thanks! Alexander, I remembered that National Lampoon Magazine Cover from childhood; I simply couldn’t resist the chance to use it.

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