I was thrilled to read Tim Berry’s November 12 post in his Planning Startups Stories blog. He was talking about 5 basic entrepreneurship skills that business schools don’t teach. One of the skills Tim listed was risk management. He wrote:
I don’t mean the technical side of risk management. Business schools are generally excellent at teaching the numbers and analysis of risk, mathematical tools to evaluate the time value of money, for example, and formulas to compare technical investment risk like the internal rate of return (IRR).
I do mean living with risk. Not betting things you can’t afford to lose. How to sleep at night when your customers owe you enough to destroy you simply by failing to pay what they owe. How to figure out which spend is a reasonable risk for generating a future payback, and which isn’t. How it feels to take a second mortgage, or how it feels to tell a graduating high-school senior with a great record that there isn’t enough money for the college he or she has earned.
The risks Tim described are what I’ve termed “Business Risk” (creative, eh?). Business risk management includes more than insurance and hedges. It is the continuous, active consideration and planning for all of the potential good and bad things that could happen to your business. The process doesn’t have to be formal or sophisticated. Expensive software and consultants aren’t required. Managing business risk is a simple process. But, it’s a simple process that consumes entrepreneurs (whether they realize it or not) and should consume owners/managers of established businesses. In fact, maybe the day-to-day effort invested in risk management is what defines the “entrepreneurial spirit”.
How do you feel about that last statement? Agree? Disagree? Tell me why.