Each C-Level Advisor contains one article on executive level management practices, which applies to all companies, and a second article focused on early-stage company development.
Essential Resources For CEOs and Entrepreneurs at Startup and Emerging Growth Companies
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-- Abraham Lincoln
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The Risk Assessment Landscape Map
A Method For Evaluating And
Managing the Risks of A Business
Developed by Bob Norton
Too often, managers focus solely on the probability of a risk or problem happening and ignore far more important factors such as the cost of failure and the ability to actively manage each risk as more is learned. To properly manage a business risks must be evaluated and monitored constantly. Steps can usually be taken to adjust the three main risk factors before and during any project. The three main factors that should be evaluated and tracked are: 1) The cost of a failure, 2) The probability of a failure and 3) The controllability of the risk. Each of these factors must be taken into account to properly manage any risk at the beginning of any project and each time major new pieces of information become available that impact those risks. Because human beings tend to be able to think in only three physical dimensions in addition to time, it is important to clearly communicate to people who only spend a small fraction of the time you do on a subject, by clearly showing complex concepts on two dimensional paper or slides. Sometimes a very complex concept can be broken down into several layers, or several two dimensional graphs, so that each accurately addresses two or three of the possible five or six dimensional problem. This allows people to both grasp and focus on certain issues. I have developed the following risk assessment diagram specifically for this purpose. Used in conjunction with a Market Landscape Map, it can be a very powerful tool to evaluate a market entry strategy, a new business opportunity or even a business as a whole. What is important, although sometimes hard to do, is to develop it in the context of specific assumptions that are fairly narrow. For example, you must do this for a specific product or service against a single vertical market or niche, not against several, as the risks will almost always be vastly different from niche to niche or market to market.
Frequently, identifying and managing risk is the major way in which a company can avoid disasters and achieve success. Larger risks, can generate larger rewards, and can be taken when those risks are very manageable or when the cost of failure is not too high. Larger risks can also be taken when these unknown factors will be revealed more quickly and the task can be abandoned earlier and at a low cost, based on certain risk milestones. Typically young companies can alter course easily, while larger more established companies often have too much momentum and overhead to be agile. Therefore, large companies need to look out in time further and change course much sooner. The diagram is a great tool for accessing risks and watching them closely. It can be easily updated over time and will help people understand the three major dimensions of risk, not just the probability of failure because taking risks should not be viewed as just a binary yes or no decision. Expected milestones, or deflection points, can sometimes help limit the risk and allow you to take larger risks without necessarily incurring the full cost of failure. In other words, manage these risks closely as you learn more and make changes when new information becomes available.
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Job Scope In Early-Stage Companies
In any startup company EACH employee MUST wear many hats. In a large company, job specialization is the rule. However, job specialization does not make for a successful startup, as it requires too many people and both costs and risks greatly increase with the added levels of communication. It is a well know fact that there are diminishing returns with each layer and additional employee on any project. This is even more pronounced in knowledge intensive areas and professional services like software engineering and other knowledge and design intensive areas. (Read The Mythical Man-Month). In early-stage and smaller companies, each employee must provide a broad range of value added responsibilities that might encompass several jobs at a large company.
Therefore, employee selection in early-stage companies is not only more critical because there are so few people, but also more fraught with danger because each person's "scope", ability and attitudes must be exceptionally broad. This means that each employee must ideally be someone who is always improving and pushing the envelope of their own abilities. Intelligence and flexibility are far more critical than they are for an employee at a big company where additional people with specific narrow skill sets could fill a role and employees having trouble can easily bring in additional experts. Large companies are much less demanding of their employees because the same type of thing is repeated over and over again and there is more redundancy in the people. In a startup, there are new surprises every week and one must be ready, willing and able to accept and tackle new problems that they may have never seen before. These might be considered "someone else's problem" in a larger company but can be life or death, do or die, situations for a startup that can not draw on other resources.
This chart shows this concept graphically: . . .
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Bob Norton is CEO of C-Level Enterprises, which provides CEO level advice, mentoring, coaching and consulting, as well as interim CEO services to companies. He has been a full-time CEO since 1989 and now works with companies to develop and refine visions, maximize performance, and design businesses for long-term strategic advantage. He can be reached at Bob@CLevelEnterprises.com.
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