Being an entrepreneur is risky business. You’ve invested your time and money on an idea, and staked your reputation on it. Protecting your business from outside risk is a big focus, and it takes a lot of work.
I see this every day at BILL, where we automate the financial operations for hundreds of thousands of small and midsize businesses (SMBs). When I speak to our SMB customers, navigating risk is always top of mind.
The operating environment for SMBs is complex, and risks can emerge from anywhere. How, then, can you effectively deal with risk?
Every business needs to take risks
Broadly speaking, there are two buckets of risk for SMBs. The first are risks taken proactively and intentionally. Expanding into a new market or introducing a new service are good examples. The second bucket are the risks that are accepted in order to do business, such as the risks posed by cyber insecurity or supply chain difficulties. Within these buckets, there are risks you know about (known knowns), risks you can foresee, but are not fully known (known unknowns), and risks you never expect (the unknowns).
For SMBs, understanding what you do – and don’t – know about risk can be stressful. This is where risk management strategies can help. Here are four strategies I’ve seen SMBs deploy effectively to equip their teams to weigh up, engage with, and manage, all risks.
1. Pick the right risk
A common misconception is that less risk is better. SMBs have so much at stake, and even the smallest miscalculation can have a big impact. But calculated risks can also be a driver for growth.
The most successful small businesses I’ve seen are able to pick the right risks to take. This means differentiating risks that can benefit your business, and those that derail it. This requires calculating the cost of taking an action, a realistic estimate of expected return on that risk, and the opportunity cost of not taking it.
ArtCube Nation, a BILL customer, is a good example. They’re an online platform for art jobs in film, theater, and events, and a marketplace for post-production set designs and materials. CEO and Founder, Eva Radke, started this as a free Google Group in 2007. After realizing the strength of the community and potential for the idea, she took a risk and emailed the Group asking her followers to start contributing $5 a month so she could build the platform.
Eva describes it as “the most nervous day of her life”, but she made the correct calculation that the risk of a negative reaction from her customers was not outweighed by the potential to raise enough capital to help her build the business of her dreams.
2. Educate employees about risk
New risks are emerging everyday, and employees are your front line of defense. Employee education is essential to equipping your team to identify and respond to evolving risks.
There are low-cost and free online learning tools that can help your employees be more cybersecurity aware. Technology companies often run free webinars with product education. Local Chambers of Commerce also hold learning sessions on trending topics. Lastly, give your insurance company a call – insurance carriers are increasingly offering free resources on risk management and prevention.
While you don’t need to spend big, leaders do need to help employees create space in their day for training. Professional development often takes a back seat to competing priorities. Don’t let this happen – it’s not good for your employees, or for your business.
3. Empower your team to engage with risk
A company culture that fosters open communication and accountability are key to engaging with risk. I always recommend business owners and leaders hold an open dialogue with teams about risk. You can do this through scenario mapping, business continuity preparations and crisis management planning. Including a broad cross-section of employees in these planning sessions is a good way to reassure all employees they will be taken seriously and not penalized for surfacing a risk they’ve identified.
A tool I use with my teams as part of these planning sessions is to develop a matrix that maps the likelihood of a risk, against the potential impact on the business. This helps us prioritize management of risks that have a high likelihood of happening, and a high impact on business.
At BILL, we have five core values – Humble, Authentic, Passionate, Accountable and Fun – that serve as the foundation of our risk-aware environment. We share company data with our employees, so they can see the big picture and are better positioned to identify risks. We talk about what it means to engage with healthy risk, and we work together to manage mistakes. And the leadership team is clear that the buck stops with us. We are accountable to our customers, and to each other. This helps build trust between colleagues, and creates an open environment for risks to be surfaced.
4. Invest in the right risk tools
When it comes to engaging with risk, data is your best friend. Technology is a powerful enabler for SMBs looking to gather data on their business, market and customers, and leverage this data for success.
Every SMB will have different technology and automation needs. Automation is often talked about in terms of efficiency gains for SMBs, but it’s also an excellent risk management lever, helping to protect against operational mistakes and a lack of visibility. For example, automating your bill pay and using secure payment methods can help you prevent fraud. Using financial automation software can also help you collect and leverage important data, such as tracking payments, safekeeping vendor and customer details, and understanding your cash-flow. This technology can help you proactively identify and mitigate potential risks, and protect your business.
Lean in to risk
Engaging with risk is part of driving business growth, but it can be uncomfortable. Equipping your team with the right knowledge, culture and tools will help them engage with risk confidently. It’s not about avoiding risk, but navigating it to your advantage. Doing so can position your business to not only survive, but thrive.
Sofya Pogreb is the Chief Operating Officer at BILL.
Embrace risk stock image by Uuganbayar/Shutterstock
