I recently told a client; “you’re in business now and you have a new set of roles and responsibilities that are about running the business and not about [readers can insert any skill here such as serving delicious coffee, performing accurate surveys, selling obscure and barely obtainable parts for vacuum cleaners and so on…]
The role of a business manager (and the express legal responsibility of a company’s directors) is to promote the success of the company. Who doesn’t want to do that? But what does it mean in day to day terms?
I think it means risk management. It involves identifying the risks to the business, working out how to mitigate those risks and understanding whether the costs of mitigation are acceptable to the business. Not every risk can be foreseen, let alone reduced but thinking through the pitfalls and having a plan in place is what will generate success.
One method for doing this, is a regular analysis of “SOFT” in the business. SOFT is an acronym standing for Successes, Opportunities, Failures and Threats and allows the business manager to think through what has and hasn’t been going well (S/F) and what new things are on the horizon, which may need a plan of action (O/T.)
In relation to opportunities and threats; this is where a risk management approach can be really effective. What could go wrong with the new opportunity and how do I avoid it? Why do I consider this to be a threat? How do I reduce its impact?
Commercial lawyers are of help here. We can help you understand what the risks are and what can be put in place to avoid any large mistakes. Often, a contractual agreement with a counter-party that expressly deals with the risk is the solution.
For example, our expert barista has found herself a brilliant pastry chef and there is a proposal for a coffee and breakfast pastry package deal. The barista already has her own mobile tuk-tuk and a good pitch near the park for dog walkers and guardians of toddlers on weekday mornings. The pastry chef suggests, he will prepare all the pastries at home and they can share the turnover of the coffee/pastry deal 50:50.
This is clearly an opportunity for the barista – a share in the pastry sales, but what if the pastries are poorly prepared and a customer gets ill? Or the pastry chef realises the coffee market is strong and after learning the trade from our barista, sets up a rival stall?
A contractual agreement can be drafted between the parties that sets out in advance how these scenarios will be dealt with. One clause states the pastry chef will take all responsibility for food hygiene and pay compensation to the barista if there is damage caused to customers. A non-compete clause can be used to stop the pastry chef setting up within a 10-minute walk of the good pitch.
Naturally, these are cartoon examples which deeply simplify real business issues, but the principles remain.
Business managers can never forsee every scenario their businesses might face but regularly thinking about risk and seeking to reduce or pass it on through contractual mechanisms is a strong tool.