We have a huge opportunity, and we’re going to be taking a huge risk to go after it. This is the kind of risk and debt could destroy everything I’ve worked for because it involves a ton of debt and if we get into a log jam we may not be able to pay for other things I need. We’re using all of our savings and then more, this is the big play. Got any suggestions?
Thoughts of the Day: Managing risk is a step by step process. You’ll have to choose from some imperfect options. As you think about what to do, keep things in perspective. Look for ways to minimize the consequences.
Build a checklist of options:
- Ask the bank or other lenders for the money you need.
- Put the deal on hold and concentrate on building up reserves so you’re in a better position
- Look for a co-opetor – another firm that might also be interested in some of the work, who could provide resources, and who is not likely to try and take your firm out now or in the future.
- Sell the business to a bigger firm that is more able to handle the work.
- Find a financial partner and share the upside and the downside on the deal.
Make a list of pros and cons for each option; That will help you look more analytically at why you might, or might not want to pursue each possible solution.
Remember going in to a big play you have options, but none of them are perfect solutions.
You can choose to avoid or minimize the risk. This might mean taking a piece of the opportunity and not going after it all. Or you could walk away from the deal, and come back to it, or another one of similar magnitude, when your company is more prepared to handle it. When considering your options, think about what it would mean to the company if things work out, and if they don’t. Most entrepreneurs are good at seeing the upside, not so good at considering the worst case.
Think about what might happen if things don’t work out.
What would you have to do? Fire people; Cut back on your personal income; Sell off assets. Could the company be in total jeopardy, and if that’s the case, what would happen to you, your family, and all the other families that depend on your company? Is it worth risking all that? Is there a safer option? Can you partner with someone who has deeper pockets or more resources to put towards the deal? Maybe you won’t get all of the upside, but you’ll also have protection from the downside.
Can you negotiate something more manageable? Can you cut down the size of the deal, or spread it out into more bite-size chunks that you can digest sequentially? What about going to a competitor in another geography and giving them a piece of the work, knowing that they won’t likely come around to set up shop in your backyard.
Can you find a financial partner to take on some of the risk?
Someone who is willing to share in the upside and the downside will probably want equity, but a piece of a bigger pie for your company may better than holding 100% on a big stinky bag of problems if things go wrong. That same rational may hold true when considering selling out. This may be the optimal time to negotiate a sale. Think about the terms you want, including future employment, ability to operate independently, security for your existing workforce, continuation of your company’s brand, etc.
Whatever you decide to do, good luck with the opportunity. I hope it works to your satisfaction. Let us know how things turn out.
Looking for a good book? The Physics of Business Growth: Mindsets, System, and Processes, by Edward Hess.