Risk Factors vs Threats
When asked what strategic planning is, I simply answer, “It’s a $2 billion industry that’s still growing.” That’s probably harsh and incorrect. It’s really a $3 billion industry that’s growing.
You can probably read between the lines that I’m not a fan of strategic planning exercises. That’s because most business strategies were made years ago when the business was launched with a really big bet. Walmart’s big bet in the 1970s was everyday low prices in rural areas. Salesforce’s big bet in the 1990s was cloud-based CRM systems (the term ‘cloud’ was introduced by the founder of Salesforce). If you want more of a pedestrian example, Clarence Birdseye made a big bet on the frozen food category.
Strategy always starts with big bets. Micro strategies follow to make that big bet pay off in the years to come.
Yet, strategic planning gurus come along, and the consultants have us follow exercise after exercise, which is more about priority planning and setting, not strategy formulation. If that’s the case, it’s more about the micro-strategies, not the big bets entrepreneurs make when going to market with new ideas.
The T in SWOT
The aforementioned discussion is a precursor to one of the numerous exercises in strategic planning. I’ve lost count of the number of SWOT activities I’ve participated in. I was never a Debbie Downer, and I did my part. I dutifully contributed to the brainstorming associated with each of these four letters.
By nature and instinct, I’m an analyst. I’m not bragging. Being an analyst is not a great thing in relationships. I see the world in blacks and whites and greys. Color can be problematic at times.
And that’s why I believe there is an alternative to brainstorming the T in SWOT once a year. My idea is not better, it’s just a perspective conjoined with a point of view. And it concerns those highly analytical minds working in your business.
I have a belief system that for every group of twenty people, there will be at least between 2-3 highly analytical people. Such people are naturally thinking of what could go wrong with any decision about to be made. At least one of those people will be good at pointing out, “Here are some potential unintended consequences if you go down that road.”
That’s a point of view, and I’m biased because I’m an analyst. But take a look at your own team or teams. Is my opinion close to being right in your situation?
If I am, doing a threat analysis during a SWOT exercise may only provide limited benefits. How about top-of-mind thinking at all times? If I were to ask you about the risk factors in your business, what would you say? Are you doing anything to mitigate those risks? Are any of those risks likely to happen soon or in the foreseeable future?
You don’t have to be the person in charge of knowing all of the risk factors, but everyone on your management team should know them from their unique perspectives. How do you go about ensuring you’ve thought about every risk that’s possible in your organization? I have an idea.
Find a Public Company Similar to Yours
I have worked with a number of startups that have created online software applications. One of my favorites has been Traxia. My recommendation for them as it is for you is to find a similar company that’s publicly traded and to read the Risk Factors section in the annual report. The purpose is not to create a checklist. It’s to look for omissions from your own set of risk factors.
Let’s take an example from Smartsheet. In their 2021 annual report, they place their risks in one of several buckets. I admire and appreciate what they have to say about their commercial and financial operations risks:
- It is difficult to predict our future operating results.
- We have a history of cumulative losses, and we cannot assure you we will achieve profitability in the foreseeable future.
- If we cannot attract new customers and maintain and expand sales to existing customers, our growth could be slower than we expect and our business may be harmed.
- Our quarterly operating results may fluctuate significantly and may not fully reflect the underlying performance of our business.
- We derive substantially all of our revenue from a single offering.
- Because we recognize revenue from subscriptions and support services over the term of the relevant service period, downturns or upturns in new sales or renewals may not be immediately reflected in our operating results and may be difficult to discern.
- We may need additional capital, and we cannot be certain that additional financing will be available on favorable terms, or at all.
These are exhaustive, and some are probably more real than others. The risk on the single product is valid, and I’m glad they’ve added it. But the founder made a big bet several years ago that simple, spreadsheet-like online project planning would be a winner. So far, this longtime customer agrees with that big bet.
What Can Go Wrong?
If I had to summarize in one sentence about thinking about risk factors in your business, I’d answer with a question, “What can go wrong in your company to cause you to be brought to your knees or to fail?”
Your list might be long. Narrow it to five to six items that will remain top-of-mind for all team members. Then, those risk factors have to be communicated regularly to team members. Those team members require muscle memory training to mitigate the risks you and/or your management team have identified.
One of my favorite industries is physical therapy. One of our risk factors is narrow in scope–at least 50% of our patients will not finish their PT programs which span four to twelve weeks on average.
Thankfully, the numbers I see are in the 80 percent range of PT plans being completed. That’s because we’ve trained staff to address those risk factors.
Obviously, some acts-of-God risk factors are hare plan for such as COVID. But that doesn’t mean you don’t neglect the risks you can lessen should they become a reality.
As I mentioned above, read a few annual reports in your industry to see how CEOs address the risks of their organizations. I find the reading fascinating and illuminating. I always find a couple of risks I had not thought about.
In short, working on the T is SWOT is not an annual exercise. Understanding your risk factors is ongoing that should be acted upon daily.
Incidentally, if you are a strategic planning diehard who loves the overall exercise and needs far more structure in risk assessment, then I’d start with The CARVER Target Analysis and Vulnerability Assessment Methodology.