How do you evaluate risk?

If you think you’re being risky, you’re doing the safest thing you can. If you’re playing it safe, you’re taking a big risk… Being very good is being invisible. Being very good is useless. You have to either be horrible, in some people’s eyes, or spectacular. ~Seth Godin

Most people think that small business owners love to take big risks but I haven’t found that to be true. Sure, starting a business was a big risk, but at least we got to do what we loved. And we kept our expenses low, so we only needed a few customers. Sure it was a risk, but it wasn’t really any riskier than getting a job, was it?

bungeejumpingIt’s once we get going, once we’re established, that the real risk aversion sets in. Now we have something to lose. We have a reputation, clients, employees and an office lease. Now is when we really find out how much risk we can tolerate. We may begin to compromise here and there. We take on a project that’s not perfect for us, but it will bring in some money. We hire a team member who is competent, but not passionate. It’s those small decisions that lead us toward being just good.

But this is our life’s work! We are giving up sleep, time with your family and vacations for this business. Are we doing that for a business that’s just very good? Are we doing that so that you can be on par with your peers? NO! We need to go further and not settle for very good. We need to fight for excellent.

Being very good is deadly. It is vanilla. It is pablum. There are a 100 — or maybe a 1,000 companies — who are very good at what we do. How many of them are a little cheaper or a little better connected? Being very good is very risky.

We must be better than very good. We must be excellent. We must go further. We must be a one-of-a-kind, a purple cow (in Seth’s language).

And when we set our standards higher like that, our risk tolerance is tested even more because we have to take more risk in the decisions we make. Even though our sales pipeline isn’t full, we should still turn down a project that doesn’t fit our skill set. When our cash reserves are low, we shouldn’t budge on our pricing to bring in more work.

Why? Because we are excellent — and excellence requires expertise and it demands a high price tag.

This is where things that look safe (taking a sure thing project that doesn’t match our expertise but will bring in some money) turns out to be really risky (“We didn’t make money on that? The client is disappointed and isn’t referring us?”). And the things that look really risky (“That looks like a terrific project, but it’s not for us. Can I recommend some other folks that might be better suited?”) are our safest bet.

How are you focusing your business to make it more than very good? What risks do you need to take now?

Comments

  1. Great article on risk Brad. As you say there is no such thing as safe. We need to continually be innovating and work on being excellent to be noticed.

  2. I’m pretty sure Brad wrote this directly to me about our company. But the rest of you are welcome to benefit from it as well.

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