ELITE ADVISOR BEST PRACTICES
Business Owners Are Risk-Averse
To survive, your clients have to think about the worst case scenarios.
By Josh Patrick
- Your successful business-owner clients are always balancing risk and rewards in their decision-making process.
- Business owners who don’t think profits first are taking huge risks in their business.
- Businesses fail because of risks business owners take, and because they run out of cash.
- Talking about the good, the bad and the ugly helps you create trust with business-owner clients.
See my free case study about roles a business owner plays.
I’m always amused when someone tries to sell me on a risky idea. It seems that too many “salespeople” have the idea that I just sit around all day waiting for them to pitch me on the newest and dumbest way for me to lose my money. If you think successful business owners like to take risks, think again.
Too many risks = bankruptcy
We all know the miserable statistics for businesses that don’t survive their first five years. The main reason for this high failure rate is that business owners don’t realize how much cash they really need to get their businesses off the ground. An even bigger issue is that new business owners often think they’re supposed to take risks. This is a myth that any seasoned business owner will tell you can be a death knell to any business.
It’s all about measured risks
I’ve been involved in many businesses over the years. Sure, I’ve taken risks. But each and every risk I’ve taken has been a measured one. I always make sure I’m not betting the store. Take a look at the businesses that appear to be taking big risks. In reality, you’ll find that most of the seemingly big risks are really carefully measured risks. The risk might even involve a lot of money. If it does, you can bet it’s a measured risk, based on the size of the business and the risk it is taking.
Even Apple, which seems to be taking huge risks all the time, rarely does so. Almost all of its innovations are incremental. It’s the same for any successful business. The risks might look large and bold from an outsider’s perspective, but for the business owner they’re just incremental—situations they can get out of quickly and easily if need be.
Fast growth isn’t it
This is where many new businesses fail. They think they should focus on growth first and profits second. Sure, you can find examples of businesses for which this strategy has worked. But I can promise you that far more businesses have crashed and burned, rather than prospered, by following the fast-growth path.
Businesses with longevity are the ones that know that without profits, you can’t have positive cash flow. They also know a sustainable business always looks at profits before growth. If you’ve worked with a business that’s been around for more than ten years, you know they need to have a cash cushion to help them get through tough times. If your clients spend every last dollar on growth, there will be a time when the market moves against them. Those times can cause your clients’ businesses to fail. When planning with business-owner clients, make sure they have a cash cushion to get them through the tough times. There really is no difference between a business and an individual needing a rainy-day fund.
Always show the downside
If you’re selling to a business owner and you only talk about the upside of an idea, you’re doing yourself and your client a disservice. If you’re not doing a downside-risk analysis with your clients, they’ll do it right after you leave their office—that is, if they haven’t al-ready dismissed your idea for not being realistic. Successful business owners know that it’s the rare idea that ever comes out as well as promised. They know that pivots are part of the game and there always has to be a worst-case scenario prepared. Just know that if you’re not talking about the downside, your successful clients are.
Business owners are control freaks
When your business-owner clients decide to take a risk, it’s because they believe they have control of the various situations that might arise. Most business owners have learned that just abdicating decision-making about new ideas to others can often turn out to be a painful and expensive learning experience. Business owners who build larger firms have to learn how to delegate. If they’re successful, they’ve learned that it’s not just delegation that’s important, but delegation with oversight.
Always make sure there is a review process in place where your business-owner clients can decide whether to move forward, pivot or just plain stop. When you build plans with these options, you’ll also build trust with your clients.
Plan for the worse and hope for the best
This has been my mantra for years. It’s also one that’s saved me from facing bankruptcy. I was lucky. My first risks in business worked out. I also learned very quickly how lucky I was, and that’s why scenario planning quickly became a crucial part of my planning process.
If an idea falls apart and no one comes to the party, what will you advise your clients to do? More important, have you helped your clients think about the worst case as well as the best?
I hope you become a true thinking partner with your client. It’ll help you sit on the same side of the table as your client and help your client make wise decisions about options they have. If you’re interested in learning about roles a business owner plays, click here to get the free case study we prepared.