How to Decrease the Risk Within Your Business
Taking risks often comes with owning a business; some decisions feel like a gamble, and it is natural to feel a little scared at times, especially if you have left secure employment to begin your own venture. When thinking about building the value within your business and building a business that works for you, predicting, overcoming and mitigating certains risks is really important. This is especially true if your plan is to eventually sell or exit the business. Understanding the 4 key risk-factors below is key to ensuring the longevity of your business, and also to make your life a little easier.
How to Achieve Autonomy From Risk:
- Don't rely on any single customer: If you lose that contract, or your customer finds an alternative supplier, you’re suddenly faced with a huge cashflow hole and an unplanned scramble to bring in new business. For example, if 80% of your business (revenue) comes from just 20% of your customers (i.e. 1 or 2 customers), you are in a precarious position and heavily reliant on those customers. To combat this, you could offer different packages (such as Bronze, Silver, Gold) that fit a wide range of budgets and customer needs. This will help to increase your customer base and more evenly spread where your revenue comes from.
- Don't rely on any single marketing strategy: Sticking with one-channel marketing (only using one marketing strategy such as leaflet drops, facebook or radio advertising) is risky because if that one strategy doesn't work anymore, your business is going to have a really tough time attracting new customers quickly. Customer behaviour, wants and needs are always changing, as is social media. Your marketing needs to evolve too. If you put an advert on the back of the bus or in the newspaper, you will only reach a limited number of people, within a limited area. It is so important to be visible in as many places as possible. Do you have a marketing strategythat is working? What could you improve?
- Don't rely on any single product / service: Don’t put all of your eggs in one basket when it comes to the service or product you sell. You are limiting your opportunity for growth, and will find it hard to increase your average customer value (the amount of money one customer spends with you). Take Apple for example; they don’t just sell phones. They have added a huge range of products to their offering such as laptops, desktops, headphones, watches and Apple TV. It is much easier to cross-sell complementary products to your already-existing customer base and multiply your revenue. What products / services could you add to your offering that complement your existing business?
- Don't rely on any single supplier: Relying on a single supplier can expose you to the possibility of not being able to get critical supplies if their operations are disrupted. This can increase your vulnerability of supply, meaning your operations are paused or stopped altogether. Relying on a single supplier could also mean price increases as the supplier knows they are your sole source of what you need. Using multiple sources provides competition and an incentive for each supplier to improve their cost and service. Make sure you shop around for the best prices and regularly review your supplier invoices. However, it is also key to build great relationships with your suppliers as a great customer - supplier relationship can mean savings and convenience for you in the long-run. But this doesn't mean you can't have fall-back options.
No matter what you are planning to do with your business – including wanting to:
1. Franchise it
2. Get external funding
3. Grow it
4. Buy other companies (with cash or shares)
5. Be independent from the biz to invest time / money in other ventures
6. Or just take your fair share of holidays each year
The sooner you start thinking about building the value within your business by decreasing its risks, the sooner you’ll get the benefits.
