Business Risk Profile Part 1

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Since April 2006, I’ve been an international business advisor providing bespoke solutions for privately-owned businesses with 12-96 employees.

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Transcript

Hi! I’m Jacob Aldrich, Director of Advisory at businessDEPOT talking this week around business risk profiles. This is a critical topic for anyone who’s in business with—frankly, anybody else whether that’s your team, fellow directors, or perhaps a husband or wife. When we talk about some of the most important context in business; the decisions you make, the drive, everything else, the thing that sits at the very top in a leadership behavior. We analyze a couple of different elements of behavior, but I find the most important of those is the business risk profile. Now you may be familiar with this from a financial planning perspective.

We have a look at a personal risk profile and that’s a fairly simple way to look at it. At a one at a very low risk, you might put your money in the bank or under a mattress, ten high risk you might go and invest in Syria because that’s a real up-and-coming economy if you can get in on the ground floor. Within business it’s a very similar concept. We have individuals who are low risk and individuals who are naturally just a higher risk, and this is reflected in their behaviors. The challenge that comes with this is that we as business owners as entrepreneurs are naturally more of a high risk than the population at large. This means most of our team are going to have a lower risk than we do.

When we make strategic decisions, when we communicate them, and frankly most business owners communicate them poorly; they tell the team what to do that I tell them why to do it, the team can feel disconnected without having a tool like this. The business owner hasn’t explained that we’re taking risks in this business that’s why we’re in business, and so you can find that the team have resistance to your ideas because to them it feels risky. They haven’t had this conversation.

In partnerships, we’ve got multiple directors in a business. The issue can show up where you’ve got people with different risk profiles all trying to have a conversation about what the business needs to do. Someone who’s got a high-risk profile in a partnership may feel that the others are holding them back, a short-sighted are frustrating their aspiration. The partner with the lowest risk profile in the group may feel that the others gambling the future of the business, ‘They’re moving too fast’, ‘They’re not thinking this thing through.’ I go into a lot of partnerships and have these kinds of conversations where we find it’s not about right or wrong, it’s just about understanding those different preferences.

Ideally, agreeing where in this journey we set the risk profile for the business, which can be as simple as averaging out the risk profile of the individual directors. This individual is always going to feel that they’re being held back, this individual may always feel that they’re being pushed a little bit, but if they’ve got an agreement about the risk profile for the business, then they can make and communicate decisions saving in that risk profile and it can work for them, and the team will take it on board.

The third and final application of this that creates a lot of challenge in small the medium sized businesses is when you have an individual owner whose spouse is naturally on board and engaged with the business, whether they’re working in it or not. I find in a lot of businesses the spouse has typically a much lower business risk profile than the one who’s gone out and started the business. This can create a massive amount of pension where you have an individual within the business every day and their spouse, who isn’t involved in the business day to day but feels that all those decisions are pulling them apart. Again, it’s a similar conversation, understanding where you are as individuals and then making an agreement between the two of you as to where the business needs to be.

Two little takeaways. The first is that ‘I’ve not yet met a successful business owner we’ve had a risk profile of less than six’. Business is about taking risks taking chances and seeing how they work out for you. Risk doesn’t mean risky, and there are ways to mitigate the risks that you may be taking. You can’t avoid taking risks if you want your business to grow. Lastly, even though this is a very simple approach, you can go online and undertake a compass risk indicator. Click on the link below and it will take you through where you can get yourself a score that gives you this overall risk profile, gives you something you can pair with your partners of your spouse, and breaks it down a little bit much little bit more detail which will also be the topic of that next video. Happy risk taking.

Next Steps

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