8 key risks all businesses should manage (but often don’t) / Bernard Marr
Risk is inherent in doing business. The best way to fail is never to take any risks.
But there are two types of risk: the kind you take consciously to move your company forward, and the kind that sneaks up on you and pounce when you’re not looking. The latter is the kind companies must actively manage to avoid being wiped out.
When it comes to managing risk, many companies prepare for natural disasters, fire, or maybe take theft prevention steps (though many small ones don’t even do that), but I think there are bigger risks companies of all sizes should manage.
If you have a plan for what to do in case of physical emergency, you should also plan for:
Risk from competition
We’ve all heard stories of a company being taken down because they weren’t paying attention to competitors, or because they didn’t take competition seriously. Blockbuster Video comes to mind; they didn’t see Netflix as a serious competitor, and they were wiped out because of it.
It’s important to monitor competitors bringing new products into the market, replacements to your offering, competition that is cheaper, better, etc.
As we all know, nothing is 'too big to fail' any more. Companies need to pay attention to market risks, remembering that their market could collapse, the demand could go down, or a new technology could completely change the playing field.
In my opinion, far too few companies put enough emphasis on nurturing their talent pool. The failure to recruit and retain talented and skilled people is a huge risk, especially in fast-moving fields such as IT, big data, research and development.
Technology risks fall into two categories. The first is the risk of not keeping up with developments – not staying up to date with new technologies, not reaching consumers where they want to be.
The second is in physical technology failure, such as website or server failure, major system failures, etc. Companies should have backup plans for every major technology system they operate.
What would happen if your biggest client disappeared tomorrow? The consistency of your cash flow dictates how nimble you should be with your outflow. The biggest risks here are especially around cash flow management, but also ensuring adequate funding, revenues, planning for profits, and so on.
There’s something to be said for the 'classics', but many industries have found themselves floundering in the face of innovation. The music and entertainment industries are still trying to play catch-up with the digital revolution. The risk here is failure to innovate the product or service your business is offering.
Partnerships are vital to good business strategy, but what happens when your main partnership goes south? Do you have a backup plan? The risk here lies especially with key relationships with critical partners, suppliers, and distributors.
In the internet age, your reputation moves at the speed of Twitter, Facebook, and other social media platforms. It takes far less time to destroy a reputation than to build one. How will you manage the risk of losing your good reputation?
It is important for companies to actively monitor these risks, but more crucially, to take steps to manage them. For each risk you identify in your business, ask yourself:
- How likely is this to occur? Rate each risk and assign priority to its management.
- How can I manage this risk? With insurance, company policy, or resources? What will you do if this thing happens?
- How can I prevent this risk? You might invest in employee training, background checks, safety checks, equipment maintenance, and maintenance of the physical premises, additional resources, new policies, or even new employee positions
Like making a will or taking out life insurance, taking a hard look at the risks in your business is rarely pleasant, but it’s an important step in building a solid foundation for a business that’s not likely to be rocked by the waves of uncertainty.
What risks do you take steps to actively manage in your business? What have I left off my list above? I’d love to hear your insights in the comments below.
At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.