By SHWETA JHAJHARIA, THE LONDON COACHING GROUP
Running a business is like playing a very complex game. And in any game, you sometimes have to take risks to win. What’s important when running a business though is not just taking random risks, but taking more calculated risks.
But how do you know which risk to take? There are three things you need to learn to reduce risk.
Learn the Language of Numbers
Before you start figuring out your risks, you must first learn to understand the language that your business speaks. What most business owners have forgotten, or worse, never realised, is that businesses don’t speak in English – they speak in numbers.
Think of these English words: season, simmer, whisk, puree, marinate, blanch, dice, fold. The common thread here is that each of these has a very special meaning to a chef. A professional chef will not only understand the words, but also know when and how to apply the particular technique of doing it just right.
Now think of these words: Profit, Sales, Cash Flow Receivables, Assets, Equity, ROI, Average Value Sale, and Conversion Rate. These are the equivalent words that a professional businessperson not only understands, but also applies whenever they make a decision about their business.
However, note that these are not just words – each of these is in fact a number. If you hope to be successful in business, you must quickly become fluent in this language of numbers and know how to apply them directly.
Also note how 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.
Learn the Key Metrics for Your Business
So now you can start to see exactly how it is that businesses owners can learn to avoid unnecessary risk. They learn what metrics are critical to measure in order to make informed decisions that are justified by the probability of success.
Here are some of the key metrics you should observe in different parts of your business in order to calculate risk:
In marketing, you should be measuring:
- 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 be thinking about:
- 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 in general you also need to ask yourself:
- How many decisions do you retract on?
- How many of your decisions are based on numbers rather than using your ‘gut’?
- When you delegate, do you evaluate the value of your time released versus the potential costs of errors when someone else does it?
Of course, the exact metrics that your business needs to consider may not be on this list, or you may only need to monitor some of the items on this list. The metrics you measure should be very particular to your business and your business objectives.
Learn to Define Better Business Objectives
This brings us neatly into refining your business objectives. You may think that we should start this process with determining your objectives, but there is a reason I’ve left it for last.
That’s because 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, if you have already written some down. The most important thing is, are they measureable?
You don’t want to “grow big” or “be great” or “help people”. You want to make sure you attribute a number to every objective.
If you haven’t heard about SMART goals, then now is a really good time to learn. This is an acronym for principles to think about when setting goals. It stands for Specific, Measurable, Achievable, Results-oriented and Time-Bound.
What this means is that your goals should all be:
- Specific – they should spell out exactly what you want to achieve and how you want to achieve it. Numbers are really good here! The more specific the better.
- Measurable – they should have distinct criteria which allow you to measure your progress and determine the success of your work. As mentioned above, this is the most critical factor for determining what risks you should be taking.
- Achievable – while you should be aiming for the stars, and your goals should challenge you, you also need to make sure your goals make sense and can be achieved. There’s nothing worse for motivation than to have constant unattainable goals.
- Results-oriented – This means that your goals should be about producing results. There’s no point having goals that don’t actual relate to the success of your business.
- Time-Bound – This is critical. When you don’t put a time-frame on your objectives, they can sit at the bottom of your list forever. 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 up 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. You may as well flip a coin.
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.
ABOUT THE AUTHOR
Shweta Jhajharia, Principal Coach and founder of The London Coaching Group, is a multi- award-winning business coach, recognised both by external bodies and the industry awards panels as the top coach in the UK. Despite competitive economy, her clients across sectors consistently achieve measurable double digit growth (over 41%) and are the most awarded client base in UK.