Minimizing Risk
All of your efforts in understanding, ranking, rating, weighting, and rationalizing your business's inherent risks will now come to fruition as you discover what you can do to minimize them. Minimizing risk is a vital step in your development of a consulting business that will answer questions raised by owners, partners, managers, and investors. What are the primary risks of your venture and how will you respond to them?
To minimize business risk, you first need to determine what they are — the topic of the first part of this chapter. Once identified, you need to consider the causes and components of the primary risks, then look for ways of reducing the impact of those components. Finally, you need to continue watching primary risk components so that they don't threaten your business's success.
Determine Primary Risks
As you develop a consulting business, it is critical that you determine your venture's primary risks. A small consulting business in a downtown area will have different risks than a wholesale import company. It's time to get specific. List your business's primary risks, rank them and, if possible, weight their relative value to the success of your venture. For example:
In the example, competitive risks are calculated as two-thirds of the total of all risks the business faces, distantly followed by technology risks. Industry maturity and supplier risks are relatively insignificant. This exercise can help you identify your venture's primary risks.
Identify Risk Reductions
Once you've clearly defined a problem, solutions become more evident. For example, to minimize the risk of loss due to competition, a cruise vacation consultant can:
Specialize in cruises that competitors don't sell
Serve a specialized group of clients that you know better than your competitors do
Offer a superlative level of individual service to clients
Identify weaknesses of specific competitors and respond to them
Track Primary Risks
Once the primary risks are identified and solutions offered, your business must carefully track them to ensure that they are being minimized. For example, if you have a primary competitor who could, on short notice, capture a significant client, you must keep an eye on that competitor. Who is it? What is it doing today? What is it planning for tomorrow? How can you further reduce the risk that it presents to your business?
Your consulting business must identify and respond to the threats your venture faces. It must maximize the rewards by minimizing the risk. Like the professional gambler, it must consider the odds and either bet or pass depending on which action has the greatest chance of ultimate success.
