How an entrepreneur copes with risk
“Instinctively a risk-taker, usually on the basis of fine calculations, David was occasionally inclined to be reckless”. This was me as a young entrepreneur and is a quote from a soon to be published book. Not the most flattering of comments but very true as it raises the question of risk management and just how seriously or not business today manages this key challenge. I don’t think for many companies risk is something which is talked about or managed as a total concept. It might be considered when looking at a new project, product redesign or an innovative marketing plan, but as an ongoing review of what risk potential a business may have at any given time I do not think it is.
I have learnt the hard way that managing risk must be a key strategy for any business and something which is reviewed on a very regular basis. In 1992 it cost me a great deal of money when unexpectedly Major & Co withdrew from ERM and sterling collapsed – I had not hedged any of my currency risk and the net effect was large losses. Losses I could not afford. It would simply have been easier to throw twenty pound notes out of the window. I can still feel the pain of watching Norman Lamont in Paris announcing the news and knowing it would have a big consequence for my business. ‘‘David was a risk-taker, a wild-eyed trader in those days, and this was a position we considered to be normal.”…..another quote from that book, but it was the turning point.
We started to look at risk in a different way by making it into a positive. When you look closely at a business there are a multitude of potential risks which can threaten its existence. Bring all those issues together, spending some time working on a hedge and minimising plan and you can sleep easier in your bed at night. The key is to review them regularly because business evolves and therefore that risk analysis can change rapidly. That’s why in our business we review them weekly. We have a written policy covering all areas together with a strategy. Our FD acts as the independent analyst to ensure our risk parameters are not over stepped and he is empowered to ensure our policy which is set at board level is upheld. A Risk Controller sits in our Treasury Department. A company of any size can set up a risk register – the list of risks to the business as you see them and how you are hedging that risk. The difficult bit is sticking to your established policy and reviewing regularly because there always seems to be something more important to do.
I would describe my business life over three decades as ‘youthful enthusiasm followed by reckless folly and finally business acumen’. I would love to remove the reckless folly because it does not look good on a CV, but quite frankly without having done the reckless bit I would not have learnt so much about the importance of risk management in business and how it can destroy. A hard lesson to learn but a positive outcome which has helped build a stronger business.