Risk, Made Manageable
Seasoned entrepreneurs and business leaders know that risk management is no trivial undertaking. The global marketplace is more competitive than ever, and there are real limits to what can be predicted or controlled.
To illustrate this, Financial Management highlighted precisely what risks have top management worried, explaining that “the quick pace of technological innovation and how that changes business models has board members and senior executives most worried.” That was just the tip of the iceberg. Other risks include resistance to chance and heightened regulatory scrutiny, to data security and adverse macroeconomic conditions.
Suffice it to say that, at this point, businesses have to mitigate risk proactively instead of simply planning to react to them appropriately. How is that done? Fortunately, there’s already plenty of guidance published on the topic. For instance, there are certain things every entrepreneur should know about taking risks, especially if they’re still in the earliest stages of launching a business and especially cogent to startups without much experience. Two of the most crucial are understanding that some risks won’t pay off, and that taking risks is a key differentiator. But most important is that you clarify different types of risks.
Defining and prioritizing risk is essential to business success and sustainability. The process is not nearly as easy as it might sound, but sometimes a checklist of introspective questions regarding our risk-taking process can help. Too few of us invest the necessary time to do so. At the end of the day, decisions have to be made and business growth won’t accelerate without an adequate infusion of risk.
Let’s take business partnerships is an illustrative use case. Almost every business, regardless of size, vertical, product or service, has to tap into external expertise at some point. That’s the nature of the game because specialization has the same universal limitation: knowledge gaps. In this regard, choosing a vendor can be difficult.
Forbes promotes salient advice when it comes to selecting a vendor. Their recommendations are broken down into four C’s: cost, capability, communication, and character. They go on to stress the centrality of that final attribute when contemplating a long-term partnership, but it’s important to recognize that even this approach has pitfalls. The one major oversight is the legal contract forged between separate parties.
Contractual obligations are no laughing matter. Countless entrepreneurs and business leaders underestimate the significance of them, often at their own expense, but it doesn’t have to be that way. Whereas earlier periods might have demanded that businesses investigate their own contractual obligations manually, technology has made such endeavors all but obsolete. Anyone can now initiate contract discovery and quickly determine the legal boundaries of specific products and services utilized by the business. Such efforts are imperative to business continuity.
The last thing to consider is contract literacy, although businesses usually ensure this before contracts are finalized in the first place. Older businesses can have a serious disadvantage because decision-makers inherit positions from predecessors and, therefore, have imperfect knowledge. That’s why the best way to combat contractual illiteracy and misinterpretation is by instituting standardized instruction. By learning more about the basics of business contracts and agreements, you can keep yourself afloat. Most of the information you might find will not be considered rocket-science, but it’s still crucial to grasp the rote basics.
No businesses can get away without taking risks. It should be clear by now that success depends on how, when, and why risks are taken as opposed to wholesale risk-aversion. Nothing ventured, nothing gained, as they say.