It’s Imperative You Know What Risk Is!

Transcript: Hey hey, Jason Blumer here and this is a great book, Running Lean by Ash Maurya. This is actually for a book for startups and though we consult with service based companies, this book is really good. Just on iterations and how to build companies, and things like that. So you can overlook some of the startup thoughts and ideas. And verbiage in here, and get a lot about building companies, and building firms in particular. So he has one chapter called, prioritize where to start. And he defines what is a risk, and one thing we’ve learned in leading and consulting with firms is that they don’t know how to define risk. And how to define risk, rewards scenarios.

So a lot of times there’s this great new shiny thing, people want to go do. They want to hire this big new position, or they want to get this great big new client, or they want to invest in this $30,000 website. And those are all risks, and you can’t just go do it, you actually have to stop and you have to assess the viability of it. So what he does is, he just defines risk and uncertainty, and I want to read that to you. He basically says, uncertainty is lack of complete certainty. That is the existence of more than one possibility. That’s uncertainty whereas risk is a state of uncertainty, so it’s a subset of uncertainty. A state of uncertainty where some of the possibilities involve a loss, catastrophe or other undesirable outcome. And the bigger the risk your making, and typically risk involves spending cash. So the bigger the risk your making, the bigger loss it could be later on. So you really have to gain the skill of a risk, reward analysis. That’s super important to stop, think about it, seek council. Do a pro/cons list, do a risk/reward analysis.

Are you maybe actually stepping in to a place that actually could hurt your company. And a lot of people don’t know, but they think entrepreneurs just take crazy risks. Risks are defined as just big dumb things they do, they go jump off buildings, whatever. But that’s actually not what really solid, successful entrepreneurs do. They do a lot of assessment of the risks. They will take risks, meaning they’ll move in to the future, where a thing is unknown. But they would do a lot of risk assessment before they get in to that unknown.

So what he talks about is prioritizing the risk, and it’s a startup book so he talks about it in three categories. Product risk, which is getting the product right, so that’s number one risk. Customer risk, which is building a path to customers, and then three market risk. Which is building a viable business. So we can interpret those from a startup to a firm, number one is product risk. Getting the product right, that’s actually the technical ability to deliver some kind of advisory or high end value based service. So that’s a huge risk, can you do it? Can you pull it off? Do you have a team that actually can deliver it with you? Because there’s a scalability issue ’cause owners can’t only provide advisory because that’s scalability. Though that’s typically what happens when you move in to advisory.

So product risks is basically, can you deliver that service? Number two is customer risk, building a path to customers. That’s basically niching in service based companies. That’s developing niche, finding the niche, marketing to them. Speaking to them, and only to them, not speaking generally to everybody because that costs a lot of money. If you’re spending advertising dollars on speaking to everybody, you want to speak just to this niched, focused service area that you want to deliver to a certain customer.

And then three, market risks. Building a viable business for. That’s really a business model. That’s a team structure, that’s a business model, that’s how do you quote value, capture value, deliver value. That’s the model of how value lows through your firm. So you can break down those three types of risks and prioritize those, to find out which risk you should be taking. So some summaries, I will say this. Just to give you some takeaways. Number one you have to get good at the skill of risk/reward analysis. It’s not a gut feel, though you may be pretty good at a gut feel. It’s not just a gut feel, there come risks in life in building a firm where you don’t fully know what you’re stepping in to. So you have to get good at the assessment, and you have to stop and analyze that assessment before you move forward. And two, risks are necessary. You have to take them to grow.

If you want to avoid all risks then you don’t want to grow. Because growing, risks and growing go hand in hand. And when I’m saying growing I’m not only talking about adding more revenue or adding more team. I’m talking about building a smarter business model. Building a more efficient team, adding leaders to your team. Growing and being a better firm is what I’m talking about, and you have to take risks to do it. You have to go do things that you don’t know will work out.

Now because this is so hard you know that Julie Ship and I, my partner we actually have a very specific session in the incubator, which we hold twice a year. And you can see the dates when we’re holding that. We have a specific session where we help people assess how to do a risk/reward analysis. How do you do it? It’s a basic skill you need when you’re growing a firm. And the incubator has eight foundational things we go through, to really get that foundation right as you build a firm. So if you’re ready to grow, you want to chart unknown paths. You want to take risks, and you want to spend cash to do that, you can’t just flippantly do it. You have to do a risk/reward analysis and if you don’t know how, we teach those skills at our incubator coming up in May and August. So I hope you can join us, and I hope that this talk about risk has been helpful to you. Go enjoy building your firm, we’ll see you.

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