A Google alert steered me to an article called “Beating the Odds When You Launch a New Venture” that had just come out in the May issue of Harvard Business Review, authored by Clark G. Gilbert and Matthew J. Eyring. It was one of the best pieces I’ve ever read about entrepreneurs, their attitudes, and management of risk. They said that entrepreneurs aren’t cowboys-they’re methodical managers of risk. I thought their concepts applied equally to small and big business. I contacted one of the authors, Clark Gilbert, to discuss his ideas and decided I wanted to share his thoughts with my small business friends. The result is my interview (below) with Clark. My comments follow his answers and are primarily addressed to small business owners. Clark Gilbert is the president and CEO of Deseret Digital Media and was formerly a professor at Harvard Business School.
1. BR: Do you think Small Businesses spend enough time identifying their risks and planning on how to deal with them?
CG: Because capital is scarce, start-ups are not likely to get very far without having to adjust to data from the market. In this sense risk identification is almost “imposed” on a start-up. The scarcity of capital forces discipline. That said, entrepreneurs who think more carefully about the risks they face, systematically target the most critical risks, and remove them will be more successful that those who do not. When you start a new venture, you donÊ¼t have all the data to make the right decisions. You just have to wade into the venture process and learn from the data that comes out. For example, you might have a hypothesis about the pricing structure and you can do things to test it, but until you actually close a sale, you don’t have the data as to the price people are really willing to pay.
BR: I have found that in start-ups and small businesses, so much time and energy is spent on putting out fires and surviving, that risk management gets short changed. Periodic time outs for reflection are needed.
2. BR: Does this differ between start-ups and established companies?
CG: Believe it or not, one advantage start-ups often have vs. established companies is the lack of available capital. This forces start-ups to be more disciplined with their at-risk capital either because it is scarce or it will cost them equity. Too often, big companies had an overabundance of capital, which makes them less responsive to changes they need to make while the venture is being formatively developed.
BR: To bolster this point and no. 1, I would like to tell you about an interview I had with Stephen Gordon, the founder of Restoration Hardware. In response to my asking, “What were the factors that most contributed to your success?” He answered, “If sufficient capital had been available to me in the company’s early stages, I might not have been as successful as I was.” I myself learned that Bootstrapping out of necessity …