As the CEO of three manufacturing firms, I have a great deal of experience in managing risk—my companies rely on my foresight and leadership for their ongoing success. I am also a business author and a San Diego VISTAGE Chair for CEOs who want to exceed with the assistance of a peer advisory group.
Drawing on my more than 25 years’ experience in starting, selling, and taking over companies, the best way entrepreneurs can manage risk is through diversification. A founder, CEO, or other C-level executive needs to always be proactive when it comes to mitigating risk. They need to always be looking at everything, and I mean everything—economic conditions, suppliers, customers, industries, and key personnel.
If the bulk of revenues come from any one customer, product, or vertical, you are facing a high probability of financial disaster. The same criteria apply if you are relying exclusively on one supplier to produce your product(s) or delivery of your services.
The same premise goes for your team. If a person is indispensable, you need to mitigate the effects of their immediate absence. You can do this by proactively identifying the person who would be the best to take over or develop procedures to quickly place someone in the role.
In all these scenarios, you want to build upon the strengths of your company. What new products could you make for a new market using the supplies and equipment you already have in place? Continually engage in conversations with suppliers and vendors, so that you have alternate sources. Review your key personnel and have a plan in place to seamlessly make transitions.
A diversification growth and risk mitigation strategy help companies expand in new directions while managing vulnerability for the company all the while contributing to the bottom line!
Article first appeared on March 15, 2020 in the Daily Scrawl