Risk Therapy 109 - RISK MANAGEMENT 2010

SMALL BUSINESS - THE MIRROR TEST

So you have a small business or an idea for one - where do you start and what must you have to keep the business thriving?

The most important ingredients for any business, and their significance, are as follows:
1. A predictable, secure, spread, sustainable income; without this you have no security - this is your primary business legitimacy indicator.
2. Risk management activities plan - this is your business risk health protection indicator.
3. Sufficient organisational resource options, at least two of each key item (either your own or outsourced to trusted business partners) - this is your structural strength indicator.
4. A contemporary, tested Business Continuity Plan (BCP), (sometimes called a disaster recovery plan, although this is a less positive title) – this is your adaption indicator.
5. A strong, almost personal, spirit or culture - your only true unique difference.

If you have these five items noted above then you have a business that you can manage or sell. How many of us can claim ownership of these elements in our business for any length of time? One could almost assess businesses and people using these criteria.

There are ‘nice to haves’ too, which you might deem essential to accelerate or boost business success in the early stages of development. These include:
1. One or more unique products or services, a unique delivery method and the means to develop more once they have been replicated.
2. Trustworthy, communicative, responsive business partners, including legal, banking and insurance.
3. A strong team around you.
4. Access to cheap investment capital.
5. Excellent marketing and promotional channels.
6. A positive profile within your customer base.
7. Previous success.
8. Market leadership.
9. A sense of humour.

The above nine items and many more besides, are not necessities and will develop over time if you attain business success; they will come to you.

In previous articles we’ve explored the many reasons why risk management is not practiced formally. Here are the principal and principle motivators for doing so:
1. Risk management is an internationally recognised best practice, for all sizes and types of business, in any location(s).
2. Intellectuals, business theorists, advisors, financiers, business schools propose and expound it uses and benefits.
3. Regulators agreed and have made it a legal requirement for all businesses in many large developed economies around the world.
4. It is a common-sense choice too as it prompts you to plan and act ahead.
5. If your competitors practice risk management and you don’t then you are handing them a competitive advantage and one that they can laud over you in their marketing.

Assuming that you are now thinking of using or augmenting your risk management practices, what should you seek to achieve?

Always remember business risks belong to you as the main shareholder(s). They are your responsibility and noone else’s. The 2008 Companies Act, due to be enacted in the third quarter of 2010, holds you personally liable for the consequences of your actions or inactions in your business.

Risk management books and degree courses refer to risk propensity (willingness to retain - adverse or tolerant?), propinquity (importance to you), severity, return frequencies and probabilities. In reality, most corporate risk managers regularly expend much time and energy identifying all sorts of potential hazards, then they ignore the majority of them as these risks are too remote or expensive to contain. It is worth mentioning that a good corporate risk manager always has a robust, comprehensive, tested Business Continuity Plan though, which is expected to respond to almost all triggers; take note.

Another lesson for all business owners, large and small, is that there is an almost unchanging set of strategic, structural or inherent risks; call them what you will. Whilst these don’t change quickly, our exposure to them does over time. The trick is find (and manage) your key risks before they find you. Contact us if you would like to discover, debate and mitigate the risks in your own profile.

One last point to consider. We tend to focus on external risks that have the potential to affect us. On occasion we elect to change our business structures or products and services, thereby exposing ourselves to internally generated risks. The impact of project cancellations and delays are considered into our plans. The distraction factor is often missed though. A change project takes on a life of its own and distracts us from our main business. Be aware of this in your planning.

Mirrors can be great teachers. Picture your business and reflect whether you would embrace the experience of being your own customer. Would you trust you to deliver on your business promises beyond this year? How long is your guarantee and what is it worth without risk management?


Paul Brightman - ART (Pty) Ltd.
Creators of Risk Therapy.

paulb@artrisk.co.za or paulb@artrhc.com or paulb@pobox.co.uk or artptyltd@iburst.co.za

+27 (0) 83 708 3634 & +27 (0) 11 646 2777.

Websites http://www.artrhc.com/ or http://www.artrisk.co.za/ or http://www.risktherapy.co.za/

ART is an authorised Financial Services Provider - FSP16339.

RISK THERAPY 108 - GODS DON’T WHINE, OR BEG.

Attitudes affect everything that we do, don’t do, or don’t do as well as we could. Success in activities as diverse as parenting, world cup events, business, even risk management is determined by our attitude. Sometimes we need a little push, guidance, education or support to motivate us. Our business leaders, legislators and regulators are providing the spur, so how are we going to respond?

Selecting and surrounding ourselves with (mostly) positive people, compatible suppliers and honest partners is a good start.

Positive individuals, not clones of you, bring tangible benefits such as fresh ideas and crime prevention or minimisation. These in turn raise or diversify income streams and reduce costs or leakage respectively. The inclusion of positive people in your teams is a more efficient means of conducting business. Intangible benefits include the motivation to get out of bed in the morning, to make the most of your life on any given day.

Are you part of a small business, a huge international corporate entity or somewhere in between? Do you prefer to buy from one or other of these size businesses? Do you have a tendency to seek out the less obvious solutions? Are you conscious of the implications of the choices that you make? Does the balance of power in these relationships favour you or the other party? Is there a cultural compatibility between you and your chosen partners?

There’s much to be said in favour of culture and size matching by business organisations. Can a large organisation readily appreciate or empathise with the challenges of say a sole trader? The target markets of both organisations are almost certainly very different so why would they choose to deal with each other if there were other options? This point alone is enough to prompt speculation that there is a higher inherent risk in dealings between incompatible entities due to size, cultural, language or expectation mismatches. Service success stories tend to involve one or more smaller businesses and peter out as the organisations grow in size, losing the personal touch that made them notable in the first place. You be the judge of the evidence that comes to your ears and eyes and decide for yourself if there are greater benefits or fewer risks to you when utilising the matching concept.

The 2008 Consumer Protection Act (CPA), due for implementation in October 2010, goes a long way towards the protection of Joe Public and some smaller juristic entities. Other business buyers (CPA extract -‘a juristic person whose asset value or annual turnover, at the time of the transaction, equals or exceeds the threshold value determined by the Minister in terms of section 6’) are deemed to be sufficiently well informed not to need this type of protection. If you are small business operator who is not protected do you think this is fair? Would you now consider making purchases from business entities in your private capacity? You might lose your discounts but you would gain the protection of the CPA. Forgive the slight pun, but is this a good trade-off? Is it honest, or does it serve to undermine the structural integrity of our society?

In the past, customers and employees of corporate organisations and governments irrationally perceived such entities as a gigantic cloud; so big that it can’t be held, challenged or controlled, massive yet without substance, tough to saddle with accountability. We got the service that we deserved. Both perception and reality have changed as we can see from the news in recent times.

In the end it all comes back to people, their attitudes and what you decide to do about them. Do you associate with those who are positive or negative, the builders or the destroyers? Without people there is no reason for business, but you can choose many of those who you deal with most of the time.

We have systems available that will assist you to explore the implications of seeming simple issues such as communication and cultural compatibility in our cosmopolitan society.

Gods don’t whine, or beg, but then they don’t have to comply or explain. Whining or begging doesn’t help, adopting a positive approach and making sound choices will though.

Paul Brightman - ART (Pty) Ltd.

Creators of Risk Therapy.

paulb@artrisk.co.za orpaulb@artrhc.com or paulb@pobox.co.uk or artptyltd@iburst.co.za

+27 (0) 83 708 3634 & +27 (0) 11 646 2777.

Websites http://www.artrhc.com/ or http://www.artrisk.co.za/ or http://www.risktherapy.co.za/

ART is an authorised Financial Services Provider - FSP16339.