Business Risk Profile Part 1. In Blackboard Fridays Episode 13, Jacob talks about leadership and the importance of taking risks to succeed in business. Need this implemented into your company? Talk to the international business advisor who can do exactly that – Contact Jacob, Learn More, or Subscribe for Updates.
Who is Jacob Aldridge, Business Coach?
“The smart and quirky advisor who gets sh!t done in business.”
Since April 2006, I’ve been an international business advisor providing bespoke solutions for privately-owned businesses with 12-96 employees.
At this stage you have proven your business model, but you’re struggling to turn aspirations into day-to-day reality. You are still responsible for all 28 areas of your business, but you don’t have the time or budget to hire 28 different experts.
You need 1 person you can trust who can show you how everything in your business is connected, and which areas to prioritise first.
Hi! I’m Jacob Aldridge, talking this week around business risk profiles. This is a critical topic for anyone currently in business, especially if you are in business with somebody else – whether that’s your team, fellow directors, or perhaps your husband or wife.
When we talk about Context in business, the decisions you make, your vision all the way down to the expectations you set, what sits at the very top is leadership behaviour.
Through my relationship with the diagnostic team at Shirlaws Compass, I like to analyze several different elements of leadership behaviour … and over the years I have found that the most important of those is your business risk profile.
[Note: When this episode was originally filmed I was an affiliate partner of Shirlaws Compass, but changes to their business model means that program no longer exists.]
What is a Business Risk Profile?
You may be familiar with a ‘Risk Profile’ from a financial planning perspective, so let’s think about it in a similar way for you as a business owner. Your personal risk profile is a fairly simple way to look at it, placing you on a scale from 1 to 10.
At a 1 you are a very low risk taker, you have a very low Risk Profile. In a personal investment sense, you might put your money in the bank or under a mattress.
Compare that to a 10, as high risk as you might go, investing in Syria or Eastern Ukraine because that’s a real up-and-coming economy if you can get in on the ground floor.
Within business, Risk is a very similar concept. Every week I see individuals who are low risk and individuals who are naturally just a higher risk … and this is reflected in their behaviour and decision making.
A core challenge that comes with this appreciation of Risk is that we as business owners or and entrepreneurs are naturally more of a high risk profile than the population at large. This means most of our team are going to have a lower risk than we do.
Why You Scare Your Team So Often
When we make strategic decisions as business owners and then communicate them to our employees, the team can feel disconnected without having a tool like this Risk Profile framework.
If the business owner hasn’t explained that “YES we are taking risks in this business” and “that’s why we are in business!!” then you will routinely see the team with resistance to your ideas because to them it. feels. risky. They haven’t had this conversation.
Confirming your Risk Profile as the business owner, and perhaps even the Risk Profile of the business (since it may be a different number) gives context to your team about both the necessity of risk and the deliberate approach you are taking to managing risk in your organisation. Risk does not mean Risky.
Risk Profiles in Partnerships
In Partnerships you will have multiple directors in a business. The issue of risk can show up where you have people with different risk profiles all trying to have a conversation about what the business needs to do.
Someone who has a high-risk profile in a partnership may feel that the others are holding them back, are being short-sighted and are frustrating their ambition. Over years of this situation stories may develop, about how those partners are deliberately sabotaging all the great ideas, and how their resistance to genius is the only reason the business hasn’t fulfilled its potential.
Compare that to the partner with the lowest risk profile, who walks into every directors meeting feeling that the others are gambling the future of the business, ‘They’re moving too fast’, ‘They’re not thinking this thing through.’
I’m privileged to be invited into a lot of those partnership / director / leadership team meetings, so I see these kinds of conversations on a regular basis. Unfortunately, the conversation is rarely about Risk Profile … and often about the stories that business owners invent when they don’t have awareness of the actual leadership framework.
By bringing awareness to each individual’s Risk Profile, and the behavioural and relationship consequences that flow from that mixed of imperfect humans, I help show that so many strategic decisions are not about right or wrong, but rather just about understanding those different preferences.
Creating a Business Risk Profile
Ideally, all parties can relax and find a common ground by setting the Risk Profile for the business, which can be as simple as averaging out the Risk Profile of the individual directors.
The gung-ho CEO is always going to feel that they’re being held back, this overly cautious CFO may always feel that they’re being pushed a little bit too fast, but if as a partnership they have an agreement about the Risk Profile for the business then they can make and communicate decisions aligned to that number. The decisions will work for them as individuals, as a leadership group, and the aware team will take those decisions on board.
Take My Wife… Please
The third and final application of the Risk Profile framework is one that creates a lot of challenge in small and medium-sized businesses: 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 that the spouse who founded the company has a much higher risk appetite than their spouse, especially if that spouse had to make career choices themselves to protect the family finances during the business start-up phase.
This can create a massive amount of tension in the relationship when you have one individual in the business every day and their spouse uninvolved in the daily operations, and both parties feel all the big decisions are pulling them apart.
As with the formal business partners, it’s a similar conversation about 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 who had a risk profile of less than 6 out of 10.
Business is about taking risks and 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, there is more nuance to understanding your specific Risk Profile and how you may clash with your partners and team.
Some of this we will talk about in next week’s video about business risk profiling. You can also go online and undertake a Shirlaws Compass Risk Indicator or the complete Compass Leadership Behavioural Diagnostic.
The outcome is a tailored report with your score, for your overall risk profile and a range of additional characteristics, plus something you can compare with your partners or your spouse to have the real conversation about how Risk is impacting your plans … and stop arguing about “best” when that’s not your real problem.
Happy risk taking.
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