I’m all for taking a risk every now and then. In fact, taking good and calculated risks is part of being a leader. We sometimes have to take decisions without being in full possession of the facts. Indeed, that’s a fairly frequent situation. So, what’s the problem?
Well. Sometimes a calculated risk isn’t really calculated. In fact, a decision can be pretty reckless where there is not enough information to make a sound decision or where evidence shows the decision is highly likely to cause significant and potentially serious damage to the business in some way.
Entrepreneurs are by nature risk takers. In order to start a business there are many risks you must be prepared to take.
Leaving a stable secure salary behind
The first risk most entrepreneurs have to take is backing themselves. You have to believe that you can make it and do more than just survive, or you would never step away from that regular income, those pension contributions and the 4 or 5 weeks holiday a year. You have to risk that losing all of that (and any other benefits) will be worth it in the long term. Because it sure as heck won’t be in the short term. Most new business owners work longer hours than they ever worked for someone else, for less pay and no holidays or benefits. If you are not a risk taker you just will not do this.
Sacrificing your personal life and your health
As a leader (whether that is the business owner or a senior manager) you risk your personal life and your health. Working 60-hour weeks is going to affect whatever home life you have and your health will suffer unless you really look after yourself. The risk you take is that it might not be worth it. Perhaps it is too high a price to pay.
Putting your security on the line
Many business leaders have had to put their security on the line, by which I mean, they have had to put their life savings, their pensions or their mortgage on the line to fund the business. This is not a risk most people are willing to take and does separate the leaders from the followers.
Trusting key employees
As a small business, and even after it grows, you cannot – as a leader – do everything yourself. Your hanging onto control in your business will prevent its growth. True leaders are able to take the risk of trusting their employees. And that is a risk isn’t it? Look at what happened to Barings Bank. Although to be fair, that was also to do with a lack of internal process. No matter how much you trust someone – the occasional check doesn’t do any harm. However, if you do not trust your employees then you will become the bottleneck in your business and you will stagnate.
So, risk kind of comes with the job as a Leader within a business or an Entrepreneur, but the problem is as a natural risk taker, sometimes the leader’s optimism is not matched by the facts available, or the worst-case scenario.
Let me give you an example.
A business owner I know wanted to expand his business. He had 10 years + in his industry as a senior manager and then as a business owner. For the first 5 years of his business the turnover and profit grew each year. At the point the team were busting out of the 7-person office (there were 9 of them), he took the decision to expand in a big way. The accountant put together a plan that required a 200k loan to effect, and the projections all seemed solid based on the previous 5 years’ experience.
Sadly, the bank didn’t agree and only agreed to a 100k loan.
At this point, the plans for the new office, the refurb and the acquisition of new staff should have been revised. However, with the eternal optimism of the entrepreneur, he decided to go ahead anyway. His thinking was they had built some fat in, in case of emergency, and they could just work a bit harder and smarter and make the plan happen sooner. He was totally confident they could do it.
And it all started well. The first 3 months in the new offices, and hiring 4 new staff, all revised targets were being met and it seemed his gamble had paid off.
Then a double whammy.
His Father died. And both he and his co-director – who was also his brother – were effectively out of the business for a few weeks, the brother not returning for months with depression. And even when the MD returned he was not on form. Meanwhile, the only other Manager in the business was out of the business for 6 weeks because…. His Father also died.
Now what happened was that 3 headless chickens were running the business. The standards of the team started to skip, one sales person was making up figures and cashflow was getting out of control and no-one noticed. For 3 months. In fact – they thought things were still on the up and having hit a big target they had set in January, the MD took the team to Barcelona to celebrate in July.
In November they went out of business. By the time the management team realised things were not as they should be, cashflow was so far out of control and predicted incomes so wide of the mark, their accountant advised they were technically out of business and they had to go into voluntary liquidation.
Rather than revising their plans, they had jumped off a precipice and hoped they would grow wings on the way down.
Now, no-one can predict the unexpected. If all the management team had not had to deal with bereavement all at the same time maybe things would have been ok. But maybe not – the plan was still based on an investment of double that which was received. That’s not really a calculated risk, that’s flying by the seat of your pants. And something entrepreneurs have a tendency to do. Sometimes it works. This time it didn’t
So what could that MD have done to mitigate the risk. Well, the obvious answer is – revise the plan. The thing is, he was never going to do that because of his mindset. However, if he had retained a coach at that time (which he now does), then the coach could have acted as a mirror to reflect back to him the implications and the alternatives.
The plan could then have been readjusted and might still have gone to pot given what happened, but would have had a better chance of working – THAT would have been a calculated risk.
If you are considering growing your business, and want to make sure you have the best chance of making it a huge success, if you want to make sure you are making calculated risks and not jumping off a precipice, talk to us about our executive coaching programmes.
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Jan Sargent is co-Director with Julie Hutchison of Transforming Performance, a consultancy which provides businesses with expert support in Leadership Coaching, Team Development and Performance Coaching, Executive Coaching, Mentoring, Training and Behavioural Profiling and help in getting the best from you and your people. If you’d like to have a chat and a coffee to discuss how we can help you, we’d love to talk. Call us on:
07947 823842 or 01722 484155