One of the most accepted business maxims is that a business enterprise must continue to grow and evolve. Stagnation is not the lack of growth; for a business, it is the beginning of the end. A business must grow to survive.
So when it comes to risk taking in business, the only option is continued growth, defined as an upward trajectory of profits. To keep your business moving, and moving in the right direction, you have to take risks now and then. “Playing it safe” all the time is a recipe for disaster.
A company does not need to jump on every risk that comes its way. Risk taking in business is worthwhile if it might open new markets or revenue streams. Risk taking may be justifiable if market conditions are changing.
The dustbins of history are littered with companies who failed to adapt when their markets changed. Buggy whip makers are the most famous examples, but don’t forget modern examples, such as Polaroid and Blockbuster.
Few companies can evolve without taking risks. Exploring new ventures. Keeping track of customer preferences and new technology. Trying new advertising and marketing campaigns. They’re all risky. Risk taking in business means you won’t always win. But sometimes you will, and you’ll win big, too.
Managing the Risk
Most businesses are rightfully obsessed with day-to-day operations. Keeping the gears turning smoothly is what makes a company successful. But it’s this very nature of business that keeps it from reviewing the risks and threats from outside the business.
Managing risk is the way to mitigate the possibility of failure and ensure the viability of the business enterprise. Adding a risk manager to your team might be a good move to help you stay on top of the risk. A risk manager can assess the current threats to your business, as well as what’s coming at you in the future.
Keeping Up with the Future
For successful risk taking in business, your company needs to keep an eye on the future. Analyze the emerging risks, track the industry trends and even note the non-related industry advances, since threats can come from almost anywhere. Having an empowered individual to advise senior management gives your company a leg up.
The threat to Blockbuster, for example, did not come from another video rental chain. It didn’t even come from the technological advance of DVDs. It came from a completely different business model. When Netflix brought movie watching to the Internet, the rental dynamo shifted and then died. Signs of the shifting consumer preferences were visible for years before the end came, but Blockbuster didn’t move quickly enough to ride the rising wave. Instead, they drowned.
Risk taking in business involves foresight. Your risk manager must keep watch over emerging trends and potential risks, assess the costs of managing change to the organization and make informed recommendations for engaging in risky behavior. Anything less is dangerous.
The Best Organizations for Risk
The organizations best suited for risk taking in business are those that can move quickly to take advantage of change. In other words, small businesses and flat businesses are the best organizations to assume risk. These companies have relatively few layers of management and few people in charge of the company’s direction and efforts.
Small businesses are naturally more flexible. They have to be. With fewer employees and smaller investments, small companies can decide quickly to ramp up a new project or exploit a competitor’s weakness. They move with the speed of change to deliver their goods or services in the most efficient ways.
Flat companies are equally adept at risk. They have few layers of management, so senior management is not isolated from the day-to-day business operations or the threats from competition and market changes. Having fewer management layers translates to a more nimble business model in which decisions can be made and resources applied quickly.
The Best Types of Risks
Often when you take a risk in your business, it can help your business not only survive, but also to thrive. If you are weighing risks in terms of the company’s very survival, however, it already may be too late. Even if senior management is willing to do whatever it takes to succeed, a competitor may already have a significant edge. But before embarking on a risky move, assess all your options. There may be a way to forge ahead instead of just trying to catch up.
If you are considering a risk to build your business, you must assess the cost not only for a potential payoff, but also for how it might affect the current expenditures. Consider whether the move will stay true to the company’s strengths. Ensure it doesn’t sap the company’s reserves or resources to the point that it impacts current operations.
Taking a risk to grow your business is the best type of risk to engage in. Often, your company is already profitable; it’s just looking for ways to grow. That profitability provides a launch pad from which to embark on a risky venture. It also provides a cushion if the venture fails.
The Best Time for Risk
When a company is stable and profitable, things are going well and risks are likely low. There is also little incentive to take risks. When a company finds itself struggling, risks of any kind are likely high. The incentive to take risks is high, but resources limit the scope of what can be accomplished. It is a dilemma.
The economy provides another way to determine when to start a risky venture. When the economy is strong, you should be watching your market, surveying your customers and tracking your competition. But it’s only when the economy ebbs that your company can reap the rewards of decisive business action.
A bad economy is the perfect time for risk taking in business. Your company may plan for this eventuality. Your risk manager has calculated the costs and return on investment. Your competition may be weakened. It’s time to act.
Results of Risk Taking in Business
Risk management enables continuing business growth. Effective risk management can boost your profits. Every business, therefore, should engage in risk at some time or another. The only other option is the opposite of business growth: it’s the beginning of the end of your company.
Do you know any other examples where businesses failed due to a lack of taking a business risk? Share in the comments!