A well-known quote by Facebook’s Mark Zuckerberg is:
‘The biggest risk is to not take any risk at all’
But for many small business owners, innovation is perceived as a risk and one they are reluctant to take.
In this article I look at how small businesses can actively use risk management as a way to identify when they need to innovate.
Leaders of small businesses are often risk averse.
We ask everyone who joins our business support programmes at Manchester Metropolitan University to assess their attitude to risk. A significant majority rate it as low to medium. My expectation was that owners of small businesses would intrinsically be comfortable with risk. However it there is a very clear distinction between entrepreneurs who actively seek and manage risk and the majority of small business owners who tend to be more comfortable only with low risk decisions.
This is understandable in that their business is their livelihood in a way that it will never be for the employee of a larger organisation. Playing safe seems like a sensible option.
‘The Biggest Risk…’
The dilemma is that this is increasingly not the case. Even sectors which no-one would ever have dreamed of being susceptible to radical change have or are in the process of profound changes which are destroying those who do not change with them. The most obvious example of this is the switch to online retail which is closing physical shops at a rapid rate. Some retailers have adapted and are arguably providing better customer service than ever – but the point is that these are the ones who saw the risks and innovated. KMPG have published a health check for retail businesses showing how rapidly decline can happen but also how interventions can help them continue to thrive.
More recently in the UK, Uber, and its competitors like My Taxi and Gett, have very quickly switched from being a source of some amusement among traditional taxi firms to a very serious threat indeed. If I were a taxi firm operator, even in some remote rural location that would appear to be Uber-free, I think I could safely bet on that model of operation becoming the norm within the next few years.
So what to do?
I have seen structured risk management work as a powerful enabler of change and innovation since it opens the eyes of the business up to what it could do better or what threats are emerging. However, it can also be a complex, time-consuming and arcane activity.
I believe that we need to promote high quality, methodical but relatively simple models of risk assessment to small businesses as a means of future-proofing them.
At its simplest, risk management has three steps:
- Identify the risk
- Assess the risk
- Mitigate the risk.
One simple approach
If you were to use this to assess threats to your sales from new competitors or products, one approach would be:
- Who are the new entrants to our market and what are they doing? If you say ‘no-one’ you need to do more research. You can pretty much assume that someone out there will be trying out new ways of getting into the market. I randomly tested this out for ice cream manufacturing. A web search for new ideas for ice cream manufacturing came up with this article talking about some immediate trends and, more importantly, some developments on a more distant event horizon that you should start monitoring as potential risks.
- From an end user perspective, is there any other way their need could be fulfilled without using or product or service? If you don’t already do it, putting yourself in your customer’s shoes every now and again is a great way of testing whether you are serving them well. Lisa Bodell, in Kill the Company talks of a great alternative where company executives are set the task of destroying a competitor – only to find out it is actually their own company they are successfully dismantling.
- If I were the end user for one or our own products or services, what would I regard as the most ideal way of getting what I need? How is this different to what we do?
- If I were one of these new competitors, how would I make sure I succeeded?
- If a new competitor can succeed by doing that, shouldn’t we be doing it?????