Small businesses have overlooked many challenges over the last year. Although smaller and medium-sized companies went bankrupt than expected, the crisis’s long-term consequences have not yet been resolved. Nearly one-third (roughly nine million) of small businesses fear they won’t be viable in 2021 if they don’t receive financial assistance.
Today, many businesses are going through some pivot to survive in a turbulent environment, reach consumers, or reinvent themselves in a digital economy. Business leaders and their teams must communicate what risk means to them before they can make these changes.
How does small business risk definition affect them after a pandemic?
You need to be aware of the differences between risk tolerance (or risk definition). Every pivot has risks. Each pivot has risks. How the team views that risk will affect how they make decisions. Leaders might be hindered from taking action by having a low tolerance for risk or different definitions of “risk.”
A company might be looking into expanding operations in the wake of Covid-19 restrictions. However, this decision maker may feel that the potential for a pivot is greater than the current operations. For this person, the “if it ain’t broke” attitude is the norm. For fear of trading a better business plan, they won’t make any significant changes. They see change as risky.
A different decision-maker may view success as temporary and believe that the current state does not indicate future success. They may feel like they are just standing there, waiting for the bus to come. In this instance, they see and changing as risky. They view pivoting the business to be the less dangerous option.
Why is it so vital that you align around risk definitions before you pivot?
Decision-making, later on, will be difficult if your team doesn’t have a working knowledge of their risk biases. Imagine your business is being restructured to create a new product line. Some team members might object to this idea, citing risk as the more significant opportunity. They will be asked: “Should I risk my current success for something we haven’t done with a brand new, unproven product?” And others will ask: “Should you pursue this opportunity to keep up with the competition?”
It is crucial to recognize the differences in viewpoints within your company before planning your business pivot plan. These different perspectives can be helpful, as they will have further questions regarding the new product options. A team member who views change as essential might inquire about material supply challenges and accessing manufacturing facilities. While one who is reluctant to change might be worried about the impact on core products and the loss of brand image, the other may see change as necessary. This allows the team to combine their concerns and create a plan to address potential issues more effectively.
How to pivot a company well by aligning your team’s definitions of risk
Get clear about the risk tolerances and definitions in your company before you start your business pivot.
These three strategies will help you to have the initial conversation.
Begin with a perceived problem
Instead of jumping to a solution immediately, you should ask questions about your problem. Ask questions about the situation, such as “We’re doing well but losing total market share due to our main competitor; what can we do?” instead of simply saying, “We need to introduce more products.”
This allows each participant to formulate the question and propose solutions based on their definitions of risk. Although you may not accommodate every perspective, it is possible to get more commitment to the final decision.
Do not assume that your risk tolerance is the problem.
Start with the perceived problem, as mentioned above, and encourage open discussion to understand better how people perceive and manage risk. It will support you if you let go of your prejudices. Don’t assume that the person who perceives your preferred method as being risky is risk-intolerant. It is easy to dismiss the point of view of someone else without looking at the real reasons.
It has been said that disagreements are helpful during the initial stages of a decision-making process but not after the decision has been made. You don’t have to insist on consensus. However, if everyone can communicate freely, you are more likely to reach an understanding. This is the “disagree-and-commit” process that Jeff Bezos and other business leaders love. An open discussion will lead to more commitment, even if there are still disagreements.
Think about the cost of inaction
It can seem like the safest option, especially when a team of risk-averse people voicing their opinion. However, it is essential to weigh the risks and calculate what you could lose if you don’t act in this context.
Kodak Co. is an example. Although it was the earliest to succeed a digital camera, it failed to make the technology commercially viable.
Your competitors could leave you behind if you don’t move ahead. It is possible to avoid this fate by performing a detailed analysis of the pros/cons of remaining the same. It will help you identify and eliminate differences in risk tolerance and definition and transparently allow your team to move forward.
Your team must agree on what risk means, as almost every small business will need to pivot to survive and thrive within a changing world. Before planning for the nuts and pieces of your business’s pivot, you need to discuss risk tolerance and risk management.