Getting into small business is risky. In fact it could even be argued that it’s one of the most financially risky things someone can do. So it stands to reason that risk management should be alive and well in small business, but contrary to logic, it is almost non-existent. In the analysis we do during the business planning process, we look at the usual suspects: economic downturn, supplier constraints, employees, security, emergencies, disasters, product liabilities, funding models and regulation (among others). Whilst these are the headline, big-ticket factors that are the most obvious, there is an even bigger factor that is usually overlooked. That risk, the biggest risk to small businesses is a factor not often discussed, or even acknowledged.
The biggest risk factor to the business is you, the business owner.
For small business, the owner’s role is so crucial, especially in the early stages of the business, that their failings can have a devastating effect on the business. The business owner as an identity and foundation for business success is not given much airtime but counts for a lot. Poor skills and knowledge can strangle a business, with poor management, bad decisions, overspending, no measurement, poor planning and often, absence of sales and marketing.
Some projects that I have worked on illustrate this point. One client who started a retail business, spent a lot of money on a gorgeous shop fitout, but when it came to marketing did almost nothing. In our planning sessions we detailed some initiatives to follow, made connections with online marketers and developed strategy - but none of it was implemented. Another, a new mobile app for fashion shopping had a great concept and platform but needed the owner to go door-door to get some traction with fashion retailers; his reluctance to do so led to anaemic growth and the business languished. One manufacturer flew by the seat of her pants, making big decisions and commitments with little understanding of the finances of the business; in doing so, she made cash flow so tight the business almost went under.
All of these situations are avoidable. Poor sales skills don’t have to mean slow suffocation. Poor financial management skills don’t have to mean drowning in debt. Poor people management doesn’t have to result in hiring a rabble. What is crucial, though, is self-awareness. If the business owner can understand their own weaknesses, expertise can be brought into the business. Unfortunately for most businesses they have no planning in place, and their blind spot is usually themselves.
Business owners are the greatest asset to their businesses so need a lot of investment in ongoing development, coaching, training and education. It’s very harsh to say the business owner is the biggest risk to the business, but better this fact is acknowledged up front. In creating risk mitigation for each of the factors, the impact of poor performance by the owner can lessen the frequency and impact.
By: Dr. Warren Harmer