George Derbyshire

“Take a chance and you won’t be sorry for a might-have-been!”

Those of you who know your Swallows and Amazons stories will be familiar with Commander Walker’s famous telegram to his adventurous children. I imagine many of us will sympathise with the sentiment, because after all, life, especially in your own business, is about taking opportunities rather than thinking “If only”. But I suspect that Commander Walker might take a different view about his children camping out alone today than he did back in the 1930’s. Taking a chance is all about risk, and our view of risk can change.

There are three things you have to do with risk - identification, management and insurance.

Risk identification

This is about sitting down and thinking “what if?” It can be a scary process. Start off with trading risks. Your business plan has your estimates of sales. What could go wrong? The economy could turn against you. A competitor could open up next door. Your product or service could become obsolete. You could literally lose your market if, for example, the area where your shop is based is subject to redevelopment. You could have a problem with supplying your customers. You could be let down by your own suppliers. You could have production problems. You could be late with deliveries due to transport problems. Staff recruitment, retention, and skills can all have an impact.

Let’s take production problems. They could be technical, especially if you are introducing a new product. Both Airbus and Boeing have had billions of extra costs because of the difficulty of producing new models on time and to cost. You could have disruption and not only because of supply and labour problems. Your power could go down. The Council could dig up the road outside your factory. The weather could intervene-snow or floods. Sitting down and analysing your risks takes time and a bit of creativity. Get a couple of colleagues or friends together and think “What if?” Two heads really are better than one on this!

Risk Management

You’ve identified the risks. Now what are you going to do to manage them? Let’s think about our fictional factory again. What can we do to avoid technical production problems? I suggest it is about planning properly, maybe staff training and making sure your equipment is adequate. Do you have a planned maintenance regime? Or do you wait for machines to break down? Do you have a staff training programme? Does that include multi-tasking so you have flexibility to move people around if you have to so you can cover absences or sudden rushes in demand? Do you have a contingency plan for weather disruption? The centre of Sheffield suffered serious flooding last summer, and a number of businesses lost vital records under water, which could easily have been avoided. IT is another area where risks can be reduced by sensible management. We all know we should back up our data, but do we do it religiously? There is more than one business which after a fire, discovered that the back up tapes were kept in the same building. Many business risks can be managed with a bit of thought and without great expense. But there are some risks you can’t manage away.

Insurance

I don’t just mean insurance policies here, important though they are, though you can get cover for a variety of risks these days. We wouldn’t dream of not insuring our buildings, vehicles and other property but is our cover up to date? It’s an expense of course, but less than the costs of replacement. Remember you can also cover loss of profits. If your shop is damaged by some idiot driving his car through your front window on Friday night, you need insurance which will compensate you not only for rebuilding, but also for the profits you didn’t earn when you were closed. I also mean insurance in its widest sense. Some risks you can’t manage or get commercial cover for. At the end of the day, in business, you never really know whether the customers will continue to turn up day after day, year after year. You never really know if a competitor is going to come in with a product which is better or cheaper than yours. Remember your competitor today is likely not to be in the next street or the next town, but in India, or China or Brazil. Take a chance by all means, but make sure the odds are stacked in your favour. Do your preparation, do your planning, take a chance. But recognise you are taking a risk. And remember that risk has a price: it’s called the Risk-Reward ratio. It’s why a bookmaker gives you short odds on the favourite. He knows the risk of him paying out is high, so he makes sure through the odds that he gets a proper reward. And you should do the same. One of the biggest mistakes businesses make is under-pricing.

Take into account all your costs and then think of the risks you are taking, and make sure you are getting properly rewarded. Running your own business has many satisfactions, for example beating the odds or accepting the challenge and taking a chance. I hope I don’t give you sleepness nights with worry. Risk is part of life: with sensible risk identification, management and coverage there is no need to feel intimidated. Take satisfaction from your success and be grateful you are not one of the unfortunate people who, through lack of attention to risk assessment, add to those miserable numbers of business failures.