Risk can be considered in two dimensions: the first is risk due to external forces: customer problems, supply chain backlog, employee problems; the second is risk due to action or inaction by a business owner.
While cliché, the concept of working in the business vs working on the business has relevance.
Working in the business encompasses things like implementing a risk management program with your insurance company, installing safety programs, policies and procedures, setting up the right coverages.
Working on the business takes on an entirely different character: Are we doing the right things, and are we doing those things well?
Investopedia offers this: “All companies face risk; without risk, rewards are less likely. The flip side of this is that too much risk can lead to business failure. Risk management allows a balance to be struck between taking risks and reducing them.”
Perhaps the most significant challenge is myopia from being 24/7 worried about the entirety of the business cycle as related to the business-executive’s specific company. For this reason, many businesses set up advisory boards or actual boards of directors. These boards are often conservative to a fault. Throwing one’s weight behind something new or different is controversial when compared to guarding the status quo. Innovation tends to happen outside the boardroom.
In the early and mid 1980’s the Andrew Jergens Company, “Jergens” was stagnating from lack of innovation. A new type of computer, an ‘IBM personal computer’ had recently hit the market. In the face of this emerging technology, a key senior executive and board member declared “We will never let go of our mainframe computer”. Within a couple of years, the Japanese company Kao Brands purchased Jergens. Many management positions changed hands thereafter.
The seminal question for working on the business is “what should be happening that is not?” For Jergens, the answer was: much. Product innovation, R&D, technology, process improvement, and equipment upgrades.
Many companies die on the vine with rationale similar to that of Jergens. This is often termed ‘bleeding out’. The world is not standing still. Hungry, smart, well educated, and aggressive executives are making opportunistic acquisitions while others eschew any meaningful measure of risk. The opportunists are raising capital and buying companies in numbers never seen before. They take considered risks, hire the right people, and work on the business. And invest in acquisitions. This new wave of successful professionals and entrepreneurs take the helm and steer through turbulent waters.
In the final analysis, is the risk of doing something different preferable to the risk of doing nothing?
