Don't Eliminate Risk, Manage It

Risks should be eliminated where possible, but nearly any business will have risks that cannot be eliminated, and trying to do so is counterproductive.

Many people who are used to dealing with personal finances and personal issues try to run a business in the same way. You understand the problem and fix it completely. You eliminate all risk with no compromises. But this barely works for a tiny business, and stops working completely at some point. Instead you’ll find you need to make a lot more ‘rock and hard place’ compromises.

This can be very stressful. If Someone Important like an accountant or a client tells you that you need to do a thing by a time and you realize that you can’t, you might be very stressed. You might assume that this is what the Failure thing looks like that has been hanging over your head since you started and that you’ve so far kept at bay. You might worry that this is The End.

But if you survive, you’ll see that any business has any number of ongoing ‘fires’ or open risks. Missed deadlines, compliance issues, problems that need to be solved without perfect information, critical people or systems who are suddenly and unexpectedly unavailable — there’s really no end to the list of things that might go wrong at any moment. The longer you operate for and the bigger you get, the more things will go wrong at any moment.

At scale, a thing that you used to ignore because there was a one-in-a-billion chance of it happening becomes a daily occurrence.

The key is to switch away from thinking about risks as things to be eliminated. As also discussed in Don’t prematurely optimize operations, figure out the magnitude of each risk and decide which ones you can:

• Eliminate
• Mitigate (reduce either the frequency or the impact)
• Ignore