• Does Risk Management Effort Define ‘Entrepreneurial Spirit’?

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    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).

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    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”.

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    How do you feel about that last statement? Agree? Disagree? Tell me why.

    • Hi Tom,

      Really enjoyed your post. I hadn’t read Tim’s blog before so thank you for that as well!

      For the most part, I do agree with your stance on “Business Risk”. It is indeed continuous and active consideration and planning, and I believe it can be a successful and rewarding as a simple process.
      The part that I have to dispute is your point that it does not have to be formal. While I anticipate that you mean it doesn’t have to be a big and expensive undertaking involving outside consultants, it’s worthwhile to say that because it is continuous, active and (hopefully) simple, it most definitely has to be formalized in some way. If we are able to set formal processes and management structures around our risk mitigation efforts, we can better the chances that our planning and preparedness will be effective when needed and that it will command less resources in its planning stages.
      Maybe it’s formalizing how you identify and prioritize your risks, or how your company evaluates its response after a loss has occurred. It may even be just setting structure and formalization around how risk management is incorporated as a part of your organization’s culture. What ever way you set about structure, risk management is indeed stronger and more successful with formalization.

      Thanks again for a great post and for getting my brain spinning this morning!

    • Thank you for the comment, Kristen. I’ve been very impressed with the ClearRisk content as well. You have a good point about my comment about “formal” – poor choice of words on my part.
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      My intended meaning was exactly as you describe, i.e. the risk management process doesn’t have to be a complicated, expensive or burdensome activity. I agree wholeheartedly with you – the process definitely needs to be continuous, active and formalized in some way. In fact, I’d assert that the word “documented” should be added to the list of descriptors.
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      Thanks for keeping me in check, Kristen! I look forward to our future discussions.

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