Running a business often means taking risks – but these shouldn’t be random risks. They need to be calculated – in other words you need to ensure they actually aren’t that risky at all!
Shweta Jhajharia founder of The London Coaching Group suggests there are three things you must learn in order to reduce risk:
1. Learn the Language of Numbers
Businesses don't speak in English – they speak in numbers.
Profit, Sales, Cash Flow Receivables, Assets, Equity, ROI, Average Value Sale, and Conversion Rate. These are the words – and numbers - that a professional businessperson must understand and apply whenever they make a decision about their business. By understanding the numbers you reduce the risks associated with any decision.
These numbers are not accountant-speak. While you need to understand your financials, the real core of the language of numbers includes non-financial numbers that are critical to every major decision in your business.
2. Learn the Key Metrics for Your Business
Understand what metrics are critical to measure in order to make informed decisions that are justified by the probability of success:
In marketing, you should measure:
- Conversion rates from various strategies.
- Average response rate of campaigns.
- Return on marketing investment.
In sales, you should determine:
- The average pound value of your transactions each month.
- The number of transactions each month.
- The activity each sales person undertakes to meet targets.
In team management, you should consider:
- Your ratio of interview to hire.
- Your turnover rate.
- How truly 'objective' your team objectives are.
- Justification of an employee's cost to the business.
As a leader ask yourself:
- How many decisions do you retract on?
- How many of your decisions are based on numbers vs. 'gut'?
- When you delegate, do you evaluate the value of your time released versus the potential costs of errors when someone else does it?
3. Learn to Define Better Business Objectives
If you keep in mind the concepts of the language of numbers and the measuring of metrics, you can then learn how best to craft your business objectives.
Take another look at your business objectives - are they measureable?
What this means is that your goals should all be:
- Specific – spell out exactly what you want to achieve and how you want to achieve it. Numbers are really good here!
- Measurable – distinct criteria which allow you to measure your progress and determine the success of your work.
- Achievable – There's nothing worse for motivation than to have constant unattainable goals.
- Results-oriented – There's no point having goals that don't actual relate to the success of your business.
- Time-Bound – This is critical. Remember, a goal without a timeline is just a dream.
You can see that when you craft your goals to be SMART, then it becomes clear what kind of direction your business needs to take – and where it needs to take risks.
Successful business owners don't leave their business to chance. Really, they don't take risks. They follow fundamental principles that allow them to calculate their probability of success, and choose the 'risk' that is, in fact, most likely to succeed.
Without learning to calculate risks in this way, you're just making guesses and hoping for the best. Instead, if you clarify your objectives and then work towards those though the language of numbers on key metrics, you will then stop relying on chance, and instead take calculated risks that have an increased probability of success.
By Shweta Jhajharia, Principal Coach and founder of The London Coaching Group