The coronavirus pandemic and recent economic downturn associated with it scared everyone. Everyone from heads of state to the homeless realized last month how incredibly fragile normal day-to-day life truly is. Businesses started losing their main sources of revenue, people lost their jobs, and states told people to stay in their homes.
The world is intrinsically risky. This has always been the case and always will be the case. That said, it’s not fun to openly acknowledge this.
But acknowledge risk we must. We all must call upon our wellspring of courage from time to time and ask ourselves, “what could possibly go wrong?” From there, we can anticipate dangers and start mitigating risk.
What is Risk Mitigation?
Entrepreneurs are dreamers at heart. It takes guts and a very specific disposition of deeply-held optimism to wake up, ignore statistics, and try to impose your vision upon the world. Other business leaders, who find themselves in leadership (but not founder) roles, have to do a version of the same thing. Wake up, take someone else’s dream, and keep it running even when they don’t know everything.
They put on a smile, or failing that, their war face, and focus on sales to be made and lands to be conquered. They have to put away their fear, anxiety, uncertainty, and doubt in order to succeed in their role.
But you must remember: anxiety was bred into us by nature. It’s a part of who we are because it kept our distant ancestors alive. It still serves a purpose.
Risk mitigation, therefore, is how we identify risks and come up with ways to address them. There are four parts to this:
- Risk identification – figuring out what could go wrong.
- Risk impact assessment – figuring out how bad risks could potentially be.
- Prioritization and analysis – using logic to rank risks in order of criticality based on their impact and probability of occurrence.
- Risk mitigation – coming up with ways to reduce either the odds of negative events or the scale of the negative impacts.
Why Does Risk Mitigation Matter?
Bad things happen. They happen all the time, including to good people with great ideas. (Nobody expects the Spanish Inquisition).
When you think in terms of risk mitigation, you’re not abandoning the sunny optimism of a founder who loves their ideas. No, what you’re actually doing is taking a cold, sober look at reality and coming up with ways to keep going when the going gets tough.
Without some level of risk management and mitigation, companies cannot set clear goals. If you set out to achieve a goal of, say, a million dollars in revenue by the end of the year, you could be thrown wildly off course if you don’t consider what could go wrong.
You could lose your biggest client or your best employee. A hurricane could force you to evacuate your office in Miami.
If you take a moment to think in terms of risk mitigation before setting the goal, though, you have a better chance of either achieving it or setting a more sensible goal. Perhaps you can find new ways to please your big client or find additional clients to reduce your reliance on them. You can document your processes to make it easier to onboard new employees in case one leaves. You can make sure your company has good remote work capabilities just in case the weather (or viruses) get bad. The list could go on.
What Risks is My Business Likely to Encounter?
The most important part of risk mitigation is identifying the worst risks you are likely to encounter. The worst risks can be thought of as risks that are very likely to occur or very devastating if they occur.
Now the coronavirus may have you thinking in terms of pandemics, but don’t get too hung up on that. Risks range from the mundane (losing a big client or good employee) to the serious (a big storm or a nasty lawsuit) to the disastrous (COVID-19).
To help you get started with risk identification and mitigation, we are going to now list ten really common categories of risk that businesses of any size have to deal with.
1. Liability and legal risks
You’ve probably seen the Incredibles at some point. Even if you haven’t, the basic idea is that a superhero was sued for saving someone who was falling from a building. As comical or unserious as this may seem, that’s actually a pretty realistic outcome in that scenario.
The point is, even if you’re extremely careful, liabilities are a big issue for businesses big and small. A customer could slip and fall on your property. You might damage a client’s fancy machine. Your products could be found defective.
Commercial general liability (CGL) insurance is a good place to start if this keeps you up at night.
2. Property risks
Losing a necessary piece of equipment can really set your business back. If you work entirely online, losing your computer can cost you a ton of money in lost revenue. Similarly, if you work in an office, one bad storm could wipe it off the map.
What can you do about this? Make sure you have equipment to spare, particularly with small items like laptops. For everything that you can’t easily replace, look into insurance. If you work from home, look into home-based business insurance.
3. Business interruption risks
As we have seen from the COVID-19 pandemic, there a lot of different problems that can arise that can shut down your business for days, weeks, or even longer. You need to have a plan in place to ensure that temporary closures remain temporary.
The easiest way to prepare for business interruptions is to keep as much cash on hand as you possibly can. If you want to go even further, you can also consider business interruption insurance.
4. Cybersecurity risks
Big companies and small companies alike can suffer from the devastating consequences of a data breach. For example, if someone steals your customers’ information from your system, you could be held liable for their problems.
Practice common-sense cybersecurity practices such as:
- Using dedicated devices to access systems
- Thinking before clicking
- Locking your PC when you step away from the computer
- Updating software
- Never sharing your password
5. Losing an employee with business-critical knowledge
Having a rockstar employee is awesome, but losing them can put you in a bad situation very quickly. You never want an employee to have so much business-critical knowledge all to themselves that you cannot continue if they leave. People quit their jobs all the time, often without notice.
Make sure you document important processes and make sure that you have at least two people who know how to do them!
6. Losing access to your revenue
This is similar to experiencing a business interruption, but a bit broader. You need to make sure that your business is not overly dependent on a single product or client. If you sell one product, try to branch out and sell others as well. If you sell a service and have one client, try to pick up some other ones as well.
7. Reputational risks
It’s easy to forget, but reputation is one of the most important assets a business has. This is true for large businesses, and even more so for small ones. All it takes to wreck a company’s reputation are a few bad reviews.
Companies cannot prevent people from saying bad things about them. However, by monitoring social media and setting up Google alerts for your business name, you can find out when people are mentioning your brand. This gives you the opportunity to participate in conversations, possibly salvaging bad situations.
8. Inability to adjust to competition/substitutes
Technology changes quickly, as does business knowledge needed to stay competitive. It’s not hard in many cases for competitors to develop a better version of what you provide.
For that reason, businesses can mitigate risks by monitoring and responding to competition in a timely manner. It also helps to have a diverse portfolio of products and services.
9. Talent acquisition and retention
The average length of time that workers stay in a job has been steadily decreasing for several years. As a result, companies have a hard time acquiring and retaining good workers. That means high recruiting and training costs as well as lost knowledge and time.
Your business needs to have a good set of processes around talent acquisition and retention. Otherwise, this will slowly drain your business’s ability to succeed and even make it vulnerable to additional outside threats.
Last but not least, the government has the ability to impose laws that will affect your business at any time. That means new regulations can make it very hard to continue to do business in the same way.
The only thing you can do here is keep on top of the news and anticipate threats before they are a problem.
It is well worth your time to identify and mitigate risks in your business. As we’ve all seen with the COVID-19 pandemic, your business operations can be upended at a moment’s notice. Even a small amount of prevention can help keep your business afloat when others are treading water.