There is something deeply satisfying about competence in the face of real risk. Keeping a lid on your fears, knowing what you are doing, and managing the risk to come out alive.
-Euan Semple
Conflict, failure, crisis, funding, cutbacks… all are your constant companions when running a business. They boil down to the same thing:
RISK: the probability that due to a hazard 
there will be a negative effect.
Those hazard are intense and countless: what if no one enrolls in my preschool? what if the economy crashes and no one can afford to order pizza anymore? what if another app comes out that makes my app invalid? what if we put all of our savings into developing this product and it never works? what if someone steals my idea?
And on and on and on and on.
I don’t like talking about risk in terms of avoidance or being risk averse. Terms like those give the false impression that we can control the risks we encounter. We can’t. We can’t control whether or not someone chooses to buy our product. Someone else could have the same idea for an app and launch it faster than I can. None of us can single-handedly control the economy. Factors we can’t control are going to affect us negatively.
But being in business isn’t about avoiding risk. It’s about learning how to respond to risk – inevitable, uncontrollable risk.  Instead of being running from risk, smart businesspeople learn how to coexist peacefully with it.
Let me emphasize that again:
They learn how to peacefully coexist with it.
That means that they find a balance – yes, there IS a balance! –  between saying  “That probably won’t happen to us! I’m not going to worry about it!” and “Something bad might happen! Better not risk anything unless it’s a sure thing.”
That’s why I prefer to talk about risk mitigation instead of risk avoidance.  We can’t always escape risk – but we can lessen its negative impact by understanding three things:
1. What our risk is, 
2. How it’s likely to affect us, and 
3. What we can do about it. 
1. Understanding What Our Risk Is
The key to understanding your own risk is twofold: you must be honest, and you must get outside perspectives.
First, honestly list every bad thing, major problem, or critical issue that could arise. The goal to identify as many things as possible that could make you say, “Oh, Crap!!” if they happened.  Fire up the computer, haul out your trusty notebook, grab a napkin — pick your method, but go through with it. I want you to consider everything –  from the price of a major resource increasing, to the roof caving in, to what happens to the business of you get hit by a bus. Write it down.
And then, sit down with someone else — a trusted friend, an industry expert — and ask them to look it over and add anything they think you’d missed. And then do it again. And again.  Try to get at least three outside perspectives. You won’t ever identify every single possible risk, but you’ll cover the majority of likely issues. And there’s a good chance that anything unexpected that comes up will be related to one of the issue you did identify.
2. Understand How It’s Likely to Affect Us
Look at each potential “Oh, Crap!!” moment you’ve listed.  Your next job is to identify what would happen next if each of them occurred. If you’re the owner and head baker for your little bakery and you got hit by a bus tomorrow, what would happen? How would the other workers know your recipes? Could they find the order book? Could they replicate what you do everything morning?  If they couldn’t, what could they make without you? How much money would you lose every day if you couldn’t be there to make those items? Document the potential financial loss of an “Oh, Crap!!” moment, and how much you think it will cost to respond to it.
It may take some time and research to identify those questions and their answers, but it’s worth it.
3. Understand What You Can Do About It
Once you know how a risk can affect you, you can start making plans for lessening the negative impact.  You may not be able to control it actually occurring, but you can do something right now to make responding to it easier.  Using the head baker example from #2, you could make sure the proprietary recipes are kept in a locked box and that someone else can access them if there’s an emergency. You could use a video recorder to document everything the head baker does in the morning so that someone else could replicate it. You could ensure that you have a list of skilled bakers in the area available for temporary work, and fund in reserve to hire someone to fill in. You could take out a key man insurance policy that pays you cash if you lose a critical member of your team. All of these are steps you could take right now to minimize the damage to your business right now — before anything bad even happens.
Being hit by a crisis is never going to be fun – but it doesn’t have to be catastrophic. Documenting potential risks, impacts, and reactions means you’ll spend less time scrambling when a crisis hits and more time reacting to minimize negative impact. Those reactions can mean the difference between closing your doors forever and staying in operation through a rough period — between sinking your ship and riding out a storm.  To paraphrase what Euan Semple said above: You, too, can keep a lid on your fears, know what you’re doing, and manage the risk to come out alive.  
You might even discover that you enjoy the ride.

 

A physicist by trade, author by choice, a born teacher, a retired veteran, and an adamant problem solver, Frank has helped the White House, federal agencies, military offices, historical museums, manufacturers, and over 250 technology startups get stuff done, communicate effectively, and find practical solutions that work for them. In his spare time, he makes sawdust and watches Godzilla movies.