The word ‘risk’ often seems synonymous with being an entrepreneur. However, our 30+ years of business experience has taught us that it is possible to lessen its impact. This week, David shares three of the most common risks that growing businesses are exposed to and gives tips on how to mitigate them.
Over to you, David!
When your business is growing, it can often feel like risks increase at the same rate as your revenue! Although we can’t eliminate risk, we can limit its damage. From careful forecasting to precise execution, there is much that can be done. My experience as an entrepreneur and a CFO has taught me that it is far better to be aware of the potential pitfalls and plan around them, than to desperately hope they never arise. To help you do this, I’ve compiled a list of three of the biggest threats that growing businesses face and given some advice on how to mitigate each of them.
1. Competitors taking your customers.
Although this is part and parcel of business, there are many ways that you can overcome it. Firstly, ensure you are aware of your competitors’ activity. Understand who they are. What are their strengths and weaknesses? How do they compare to yours? All of this will help you keep your finger on the pulse of the industry, which will allow you to forecast any changes and identify emerging patterns. By undertaking intelligent research, you can ensure you maintain your competitive edge.
The second piece of advice is: focus on a niche area and dominate it. Many entrepreneurs cast their net too widely, adopting a one-size-fits-all model. Unfortunately, these companies lose focus and often fail. The most successful entrepreneurs spend their time on one or two niche markets and are all over them. You just need to make sure that the market you are targeting is big enough to support your business and growth ambitions, and then go for it.
Finally, arguably the best way of stopping competitors from taking your clients is by building brilliant relationships with them. Focus on not just meeting, but exceeding your clients’ needs, and you will ensure a loyal, long-standing customer base.
2. Employees stealing your assets.
It is a sad fact of life, but it happens. Ever since I started my career as an auditor at PWC, I have witnessed rogue employees taking the company’s assets and using them for their own benefit. Sometimes these frauds are sophisticated, on other occasions, simple. But over the years I have noticed the clues that indicate theft is taking place.
One tell-tale sign is an employee whose behaviour and spending patterns suddenly change. If someone who earns £30k a year starts travelling to far-flung destinations or buys an expensive car, you will need to investigate further. This risk can be mitigated by regular financial reporting and comparing your results against a budget. As well as this, you can put tight controls on spending and manage the company bank account yourself. Ensure that your staff are aware of the limit to their spending authority and include senior management in the sign off process.
3. Obsolescence of your product or service.
Although particularly rampant in the tech industry, obsolescence also troubles established industries. The way that Blockbuster became obsolete with the arrival of Netflix is a prime example. Therefore, we must ensure we mitigate this risk. You can do this by keeping in touch with industry activity, as discussed in point one. Attend trade shows, networking and industry events. Although exhibiting costs a fortune, you can afford to attend. This will enable you to be aware of what the industry leaders are up to and consider the impact to your business.
You can also think about the ways you could make your own product or service obsolete. This may sound counter-intuitive, but if you aren’t doing it someone else will. Take the lead! Consider innovative products or services that you can offer your customers. Be an industry thought leader, not a follower. Write a book, set up a podcast or speak at events. Become known for what you do.
Finally, read! And read widely. Books, blogs, magazines, anything that is published by a respected member of your industry. To go even further, check out what the futurists are saying. What trends are emerging? Are there any demographic shifts you need to be aware of? From ageing populations to the impact of Brexit, all good business leaders understand the wider demands on society and how they impact trade. Similarly, the exponential explosion of the internet will always be a factor, so make sure you keep technological developments at the forefront of your strategy too.
To sum up, risk is always around. Do not be afraid of it, be one step ahead of it! As the great Warren Buffett says: “risk comes from not knowing what you are doing.” So be prepared.
Until next week! David.