Blog » Five Strategies for Managing Risk in Your Business

Five Strategies for Managing Risk in Your Business

FreedomIs the U.S. losing its competitive edge?A recent article on suggests we might be – at least when it comes to pushing the envelope in the business world.

According to Risk-Averse Culture Infects U.S. Workers, Entrepreneurs, the level of risk-taking in our society is currently on the downswing. The article points to four long-running trends as evidence of our increasing adversity to risk:

• Companies are adding jobs more slowly than in the past
• Investors are putting less money into new ventures
• Entrepreneurs are starting fewer businesses
• American workers are less inclined to change jobs or move for new opportunities

It’s been almost four years now since we officially “recovered” from the great recession. Yet, according to the article, jobs in the U.S.
have yet to rebound to pre-recession levels. Part of this has to do with the downward trend in new business startups, which have historically been a strong driver of job growth in the U.S. Meanwhile, the article also reports that total venture capital invested in the U.S. fell nearly 10% last year, and has yet to return to pre-recession levels.

Here’s what concerns me the most: U.S. businesses are taking fewer risks. The article cites the fact that companies are keeping more cash on hand rather than investing in hiring new employees. But it goes deeper than that.

Keeping up in today’s markets requires ongoing innovation, which demands a certain amount of risk. There’s plenty of innovation going on in technology, banking, life sciences and other sectors. But I see many companies and industries where “hunker down” rather than “push the envelope” remains the leadership mode of choice.

One reason we may have become more hesitant to embrace risk is that the consequences seem more severe. In today’s hyper-paced markets, one new product mistake or market miscalculation can put a company so far behind that it never catches up. Or put it out of business altogether. As a result, many companies play not to lose rather than playing to win.

Another is that many companies have cultures that don’t support risk-taking. They may not overtly say “don’t rock the boat.” But management decisions and ways of working focus on maintaining the status quo over exploring new possibilities.

How do we get our “mojo” back? By managing and mitigating risk, not by avoiding it. Here a few guidelines:

Accept the need to take risks. Understand that what made you successful in the past will not necessarily do so in the future. In fact, if you do business in markets and industries that move very quickly, you can count on it.

Compare the risk versus expected ROI. Unless it’s a matter of survival, don’t bet the farm on one new product or initiative. It’s okay to take a chance on a long shot every once in a while. But overall you’re better off taking measured risks where the potential upside far outweighs the damage to the company should the initiative fail.

Make decisions based on data, not thought bubbles. Many innovation efforts fail simply because those in charge didn’t take the time to gather enough data. Instead, they forge ahead based on what they think they know about the market and customer needs, and then wonder why it goes over like a lead balloon. Never take a risk that’s not supported by data.

Do a reality check. Do you have the people, skills, and organizational systems and processes in place to make the initiative a success? If not, can they be brought into the organization without draining resources from other critical areas of the business? If you can’t make the new project, product or process a success with identified resources, strongly consider why and whether you should go after it.

Have a plan B. Before taking any big risk, pretend that it has already failed, and brainstorm the reasons why. Then create a plan B (and C, D and E, if necessary) should any of those reasons come to pass. No matter how well-planned, it’s the rare business initiative that unfolds exactly as expected.

In the 21st century, being an effective leader means getting comfortable with a lot of things previous generations of leaders didn’t have to grapple with. Too much data (rather than not enough). A ferocious, relentless rate of change. Obsoleting your own products before the competition does. Low barriers of entry for competitors, who can come from anywhere around the globe. And of course, higher levels of risk. If you can’t stand all this heat, then get out of the kitchen and let a new chef take over!
Call to action: Identify one risk your organization will take in the next three months.

LinkedIn question: What is your comfort level with risk? What would make you more comfortable taking more risk in your business?

Make your next business event a memorable one! Email us today!

Check Out Holly’s Books