Every Printing company has risk tolerance. Most have just never defined it. We could be talking about general business risk, financial risk, customer concentration risk, or any one of a variety of areas. We should also discuss the risk of acting, versus the risk of not acting. Your decisions are tied closely to whether you are playing to win or playing not to lose.
Risk Doesn’t Always Look Risky
This probably means a lot of different things to different people. It could be buying a $3 million Press. Risk could be whether to acquire a competitor. Risk could also be whether to hire an expensive salesperson or enter a new market. Keeping old equipment, tolerating underperforming staff and delaying leadership transition are also risk decisions. Doing nothing is still a decision.
Financial Risk – Can we Afford it
The business has been solid and some of your key account wins have been giving you more work. You’re rethinking the press room and trying to decide if it’s time to add capacity. Some of the things that run through your mind are debt load, cash flow, working capital, and what will the bank say with the existing covenants you have – all legit concerns.
Two more scenarios that you should consider when you’re at this point: what happens financially if this doesn’t work? And, what happens financially if we don’t do it? Each situation is different, but those are some of the questions that I would want to ask. Face it, the million dollars plus equipment investment carries substantial risk. But that must be weighed against the risk of spending another three years producing work inefficiently on older equipment.
A Handful of Customers
Many years ago, it seemed sacrilegious to have a very high client concentration. It seems to be less the case these days, but it’s still a major concern. There are many companies that are profitable, and seem healthy, all the while being dangerously dependent on a handful of customers. Maybe a question that should be asked; if your largest customer disappeared tomorrow, would you have a sales problem or a company problem? Would your pipeline be robust enough to backfill that quickly?
The client concentration we see today may in fact be intentional. Companies may accept that concentration because the economics are just too compelling. Maybe the view should be that risk tolerance isn’t about eliminating risk; it’s about knowing which risk you’ve chosen to carry. And I couldn’t speak about client concentration without adding that all clients are loyal until the day they’re not.
What is Risk Creep?
How about that customer that started out six years ago as a minor part of your business and over the years has continued to grow where now it could be over 25% of your business. You didn’t just wake up one day and decide that you wanted a quarter of your business from one of your customers, hardly. Rather it happened over time. This is why risk management should also be part of your strategic planning process. And it’s not so much that you’re going to tell this account to leave, that growth forces you to build up the accounts around it so it’s not such a high proportion of your total.
More Risk Buckets
That’s right, we’ve barely scratched the surface when it comes to running a business and the different types of risks that can challenge even the most experience leader. There are areas that include technology and capital equipment, including workflow, automation, and AI. There is also market and product mix risk. And let’s not forget about people, staffing, an aging workforce and succession planning.
I’ll touch on these, and others in Part Two of this blog. But for now, I’ll leave you with this, the biggest risk in your business probably isn’t the one you’re discussing at the next leadership meeting. It’s more likely the one that you’ve grown too comfortable with. Maybe it’s client concentration that’s been around for years, or maybe it’s the equipment decision that you keep kicking down the road, or maybe that supervisor that you’ve had to work around for too long period of time. The question isn’t whether you’re taking risk. You already are. The more challenging question is whether you’re choosing them or simply living with them.
Mike Philie helps owners and CEOs in the Graphic communications industry validate what’s working, identify what needs to change, and create a practical path forward.
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