Building a business is brutally difficult.
You’re often forging a path through an untouched jungle, unsure what obstacles lie ahead. Other times the path may be clearer, but the terrain is riddled with landmines that can (and will) catastrophically impede your progress. In order to build a successful business, you must first survive.
Survival is all that matters.
The key to survival is to systematically identify, assess, and take out critical risks before they kill your company.
The challenge is, most Executives don’t have an effective framework for thinking about or dealing with risk. They spend their days fighting the fire du jour. They don’t have the luxury of contemplating items that may never materialize, or in the best case, take months or years to play out.
They’ll deal with it when it becomes a real problem.
Except by then, it’s too late.
Executives need an effective, low-maintenance toolkit that they can revisit regularly to check in on the risk landscape. My go-to framework in this regard is the Risk Map.
The Risk Map is a simple 2x2 matrix that plots the likelihood of a risk occurring along the X axis, and the business impact if the risk materializes on the Y axis.
All risks can be categorized into one of four quadrants:
- Quadrant A: ACT. The risk is likely to occur and if it materializes, would have a material impact on your business. As an Executive, this is where you want to be spending your time.
- Quadrant B: INSURE. These are the “once in a million” risks that would be catastrophic if they occurred. Risks in this quadrant should be offloaded to a counter-party or have a reserve set aside to self-insure.
- Quadrant C: IGNORE. These risks are unlikely to occur, and even if they did, the impact would be immaterial. Identify and ignore them.
- Quadrant D: DELEGATE. The daily “fires” show up here. These risks show up enough to be annoying, but their impact on the business is minor. Delegate these items to someone on your team to resolve and establish processes to ensure they don’t come back.
I make a habit of doing a quick review of the Risk Map every Monday morning. In that review:
- I add new risks to the appropriate quadrant,
- scan for changes to existing risks (does it still exists and/or does it need to be reclassified?), and then
- highlight the risks that require action.
The entire process takes about 10 minutes and gives me a clear view on where I should (and more importantly, should not) be spending my time each week.
Over the years, I’ve noticed that there are seven types of risks that regularly hit my action list —I call these the 7 Business Killers.
The 7 Business Killers
1. Product-Market Fit Risks
People don’t buy products, they buy solutions to urgent problems.
What urgent problem does your product solve? For whom? To determine if you have Product-Market Fit, ask your customers one simple question:
“How disappointed would you be if you could no longer use our product?”
If less than 40% of your customers answer anything but “Very disappointed”, you have work to do.
2. Scale Risks
More companies have died from scaling too early than from scaling too late.
It’s far too easy to mistake initial traction for Product-Market Fit. As the early wins roll in, it’s natural for Executives to want to start layering in people and processes to get ahead of the inevitable explosion of growth. However, this inclination INCREASES the risk profile of the business if growth doesn’t sustain.
It’s better to limit your initial cohort of customers and observe them beyond the onboarding phase to ensure you’ve nailed the value proposition before deciding to scale up.
3. Financial Risks
An abundance or shortage of capital is equally deadly.
Too much capital and the pressure mounts to scale prematurely. Too little capital and it’s hard to design enough experiments to validate Product-Market Fit. A better approach is to move from milestone to milestone, funding each segment and monitoring results to ensure your hypothesis are playing out.
Financial discipline is key to building a robust, enduring business.
4. People Risks
Ask any business leader and they’ll tell you that their people are their greatest asset.
In response, I like to ask Executives:
“What percentage of key seats within your organization are currently filled with world-class leaders?”
A key seat is any role that has the power to make significant people decisions and/or where success in the role would have an outsized impact on the company’s success. If at any point you fall below 90%, it’s time to take action.
Try it, you may be surprised by your answer.
5. Competitive Risks
If your business is successful, you will attract competition.
It’s inevitable. The key is to identify where you have an advantage over the other players in the market. Whether it’s price, features, quality or distribution, look for opportunities to double down on your strengths.
The key is to never let up — you’re most vulnerable when you’re playing with a lead.
6. Legal & Regulatory Risks
Every business at scale operates in an environment of legal and/or regulatory complexity.
It’s the nature of the beast. One of the biggest mistakes scaling companies make is underinvestment in legal and tax expertise. These professionals help you identify and stay ahead of “black swan” risks that inevitably impact the entire market.
You can’t control or mitigate what you don’t know, so hire the best to surface these risks for you.
7. Systemic Risks
Systemic risks threaten the viability of entire markets.
What would happen to your business if a global pandemic forced you to close your doors for months at a time? Or a global supply chain shortage means you can’t fulfill existing demand? In today’s interconnected world, a seemingly small event halfway across the world can fundamentally alter the course of your business.
Are you agile enough to survive?