You can't avoid risks in business, but you can mitigate them.
In Michael Gerber’s books, The E-Myth (1986) and The E-Myth Revisited (2004), he states that 80 percent of new businesses fail in the first five years and that 80 percent of those remaining will fail in their first 10 years. Stated another way, 96 percent of all businesses fail in the first 10 years. So, then - by definition - starting a business is risky. If you’re reading this blog, there’s a good chance that you’re a business owner, and therefore, it stands to reason that you are a risk-taker.
Somewhere along the path, you made the decision to start or buy a business. Perhaps you weighed all of the positives and negatives by taking a sheet of paper with a line down the middle listing the pros on one side and cons on the other. Perhaps you were forced into a quick decision because you suddenly found yourself unemployed. Perhaps you thought about it for 20 years and finally pulled the trigger. Regardless you somehow took that leap and became a business owner. Congratulations.
Perhaps you’ve made it through the riskiest first 5 years and way beyond, or maybe you’re only a few years into it. Regardless, it’s likely that many of the benefits of business ownership that were on the positive side of your initial thought process have come to pass. And hopefully, your business is providing the lifestyle that you dreamed about. If it is, chances are pretty good that many of those initial risk factors have lessened or maybe even disappeared by now. So your business is no longer in danger, right? Not so fast.
Sure the risks have changed, but I posit that there are new risks that have taken their place.
Some of the new risks may keep you up at night. And it’s likely that many of these new risks are out of sight, out of mind for you. So, let’s talk about some of the risks of owning a business.
I would classify a business owner’s risk in two broad categories - personal and business - and of course, there are items that should appear in both categories, such as debt. We can’t consider just business risks because it’s likely that you and your business are dependent on one another. The business likely needs you to keep the engine humming, and you likely need the business to provide for you and your family. In this week’s Maximize Business Value podcast, we talked about business risks, and next week, we’ll address personal risks that can impact your business.
Of course, there are the 5 D’s - death, disability, divorce, distress, and disagreement - but there are many more. This chart adapted from Chris Snider’s book Walking to Destiny, (2016) shows just some of the risks you face personally and in your business.
Of course, there are other risks you face personally and in your business, and each one of these items can be broken down into further risks. They are also intertwined. For example, if your business is dependent on you and suddenly tragedy strikes - would the business survive, and would your family be provided for?
If your business has a high customer concentration or is dependent on one customer and that customer leaves or goes out of business, would you suffer a significant loss of income? If a natural disaster occurs and your building is seriously damaged or destroyed, do you have a contingency plan in place to ensure continued operations? Increasingly there is a risk of data being stolen or held hostage. If that happens to you, are you prepared? If you are in a partnership or have shareholders and there are differences that become irreconcilable, what happens to the business and to your income? If the economy takes a dive, will it impact your business as well as your other investments? I could go on and on.