There are a few better feelings for business owners than winning a huge contract or being offered an opportunity to expand the business. But these big opportunities could come with unforeseen risks. How can you determine when to pursue a game-changing but risky opportunity and when to play it safe?
Often, objectivity is crucial in these situations. Let’s look at a fictional but representative story about how a business owner leveraged her Advisor Team to determine when to pursue opportunities and when to hedge against risks.
The Whale
Genevieve was anxious and excited. An enormous prospect had submitted a request for proposal from her company, which would make her company their primary vendor.
In reviewing her prospect’s needs, she calculated that if her company won the contract, it could increase revenue streams by up to 75% a year. But as she dove deeper into the prospect’s needs, she began to wonder whether her company could handle a contract of this size.
The prospect required her to fulfill orders both locally and in all surrounding states. The prospect’s expected turnaround times for delivery were tighter than any other company she had served in the past by far. She was worried that her company simply didn’t have the resources to do everything the prospect requested.
Genevieve felt stuck. She wanted to submit a proposal, but she did not want to position her business to disappoint the prospect. Unsure of what to do next, she contacted her business attorney, who also specialized in Exit Planning.
After reviewing the prospect’s needs and ensuring that there were no legal hurdles to Genevieve submitting a proposal, her business attorney asked her how confident she felt in fulfilling the requests from the prospect.
“I want to say we can do it, because this is a business-changing contract. But I’m not 100% certain we’d be able to handle this prospect and all of our current customers at the same time.”
So, her business attorney gathered his most trusted advisors to help Genevieve navigate the opportunities and risks that this prospect’s RFP created.
Being Optimistic and Realistic
After assessing Genevieve’s business capabilities, her Advisor Team presented three facts about how accepting this enormous contract could affect her business:
- Her business in its current state would likely not be able to fulfill the needs the prospect presented without more resources.
- The company’s financials were strong enough to allow her to take out loans to expand her workforce and essential operations to fulfill the prospect’s needs.
- She would likely need to hire a manager to focus strictly on the prospect or on her business’s current customers.
Genevieve was excited to learn that it would be possible to serve this prospect, but she was also fearful that the risks she would have to take would have negative effects on her current customers. She had built relationships with her current customers over two decades, and she wasn’t sure she was comfortable handing that off to someone else. At the same time, the enormous prospect was considering her business primarily based on their relationship with Genevieve.
Many business owners in the process of growing their business face challenges like these. There’s often an element of give and take when growing a business, which can lead business owners to make emotional decisions that may not be in their best interest.
Working with her Advisor Team allowed Genevieve to uncover some of the things she would have to do in pursuit of the growth she wanted her business to experience. She had never been in a position to expand so aggressively, and she worried that she would overshoot her capabilities if she tried to figure it all out by herself.
Fortunately, her team of objective experienced professionals laid out the strategies she could take to best position her company to win the contract, deliver on her obligations, and still provide high-quality service to her current clients.
Always Look Both Ways
Just as we all learned as kids when we were crossing the street, it’s important to look both ways. Understanding the risks that opportunities create can help you protect your business from unexpected issues down the road. Likewise, keeping an open mind about opportunities without thinking about all the ways everything could go wrong can give you the confidence you need to pursue business growth.
Risky opportunities can come with huge rewards. But as a business owner, you don’t want to run headlong into a risky proposition if it could do harm to everything you’ve built thus far.
On the other hand, refusing opportunities because they seem too risky or unfamiliar on their surface could position your company to stagnate and plateau. And of course, exciting, risky opportunities often inject an element of irrational emotions that can cause business owners to focus only on the short term to the detriment of long-term success.
This is why objectivity is so important for business owners to leverage. A team of advisors will likely be obligated—if not legally then for the sake of their reputation—to pursue strategies that are in the best interest of your business. They could help you assuage irrational fears, stay realistic about your business’s capabilities, and allow you to pursue opportunities while reducing your exposure to downside risks.
We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional.
All scenarios and names mentioned herein are purely fictional and have been created solely for educational purposes. Any resemblance to existing situations, persons or fictional characters is coincidental. The information presented should not be used as the basis for any specific investment advice.