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Business Well Done™

On the challenges faced by leaders of established businesses.

Eggs In Baskets

There are no guarantees in business.  The innovative product, the next five years' economy, the new CEO... is never a sure-fire thing.  No matter how careful, thoughtful and diligent we are, life is too complex for certainty.  The best leaders recognize this and proactively spread out their risk.

So let's count baskets, some more obvious than others.

Macroeconomic: if one sector of the local or global economy took a sharp downturn for a while - if people stopped building houses (a not-so-distant memory), or oil prices plunged (that never happens), or if the Euro weakened against the dollar (I see a pattern here) - could your business survive?

Markets: closer to home, could you survive if demand plummeted in a single market - say, for horizontal drilling rigs or traditional taxis?

Customers: does any one customer represent more than 20% of sales, and what would it do to your bottom line if that customer disappeared?

Technologies: how much of your business relies on a certain technology not becoming obsolete?  This is a two-sided risk; the technology may be market-facing (everyone uses light bulbs) or inherent in your operational design (we use the byproducts of coal-fired power plants).

Regulations: if, thanks to the pen of a lawmaker or the loss of funding, a key regulation vanished, how much of your business would vanish with it?

Ideas: do all your ideas come from the same sources (the same people, the same activities, the same media)?  Are they tried-and-true sources, or do you need fresh thinking?

People: when you hire, are you merely deepening the inbred gene pool?  Are all your new people from the same background, industry, race, gender?  Remember, the healthiest dogs are mutts.

Knowledge: how much of your critical know-how resides in one person's head?  Do you let that person go hang gliding (or eat fried foods)?

Suppliers: if that one supplier went out of business, or dropped you for another (bigger) customer, or lost its discount on a key commodity, how badly would it hurt?

Applications: if customers changed how they accomplished a key objective - if they found a different way to get it done - would you have any customers left to serve?

Channels: if one of your channels found a better product for its customers, what would you have left?

We can't eliminate risk.  And we can't have multiple baskets for every kind of egg - not every business model can establish multiple interchangeable suppliers for its core component, for example.  But by considering our concentrations, we can evaluate the risk and lead proactively.  We can diversify where realistic, mitigate where possible, and know which indicators we need to watch closely.

I suspect that whoever first said "Don't put all your eggs in one basket" clearly knew the disappointment - and maybe the harshness of hunger - that comes from suddenly, unexpectedly losing everything at once.

Paul SchwadaComment