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Posted: October 24, 2011

Monsters under the bed

Sometimes they really are there

Todd Ordal

Most of us are occasionally guilty of ignoring information and putting our heads in the sand. For instance, the town where I grew up floods most years and is getting worse. However, people knowingly build in these areas. How many of us ignore sound advice and smoke, eat bad food or avoid colonoscopies? We sin because we get pleasure from the bad behavior or avoid unpleasant action.

Several recent conversations with business owners highlight the latter. In one case, severe concentration issues (that is, too much weight on either one or a handful of customers or suppliers) jeopardized his business. You wouldn't see it by looking at the history and financial statements, but the business could all collapse in a heartbeat. The hard work required to recraft the business model and minimize the risk was not done.

Another owner was unwilling to do the heavy lifting required to market her business. She focused on operations and counted on "bluebirds" showing up without much marketing required. Hope is necessary, but not sufficient, to fill the pipeline with customers.

Many executives use good thought processes for decision making and evaluating opportunities but don't put much thought into risk analysis. Spending the weekend in a tent on the San Andreas Fault is one thing, but building a nuclear power plant there is quite another.

The problem I run into most frequently isn't an external risk but rather internal - the risk of "bad people." Extremely competent executives and business owners who think strategically about their businesses and are frequently aware of their many external risks don't think hard enough about having the wrong people in their organization. They tolerate ridiculous behavior because the person has some other redeeming qualities. ("But he serves our largest customer!" "But everyone loves her!" "But he knows where the bodies are buried!" "But it will be so hard to find a replacement!")

A well-worn axiom is: "If you think education is expensive, try ignorance!" The same can be said about the partner, vendor or employee who may bring some value but causes immeasurable damage to your P&L, reputation or culture. If you think it's painful to replace them, calculate the cost of keeping them! In most cases, people dodge the hard decision because they have misguided loyalty or are avoiding unpleasant actions or conflicts (see No More Mr. Nice Guy).

An old friend used to say, "It's hard to make good decisions when you're running scared!" He's right, but he also almost went out of business because he ignored a risk that many others saw. As the year comes to a close and you start planning for next year, don't forget to identify the external and internal risks you face. When thinking strategically about your business, it's much better to think about running toward a brighter future than away from a monster, but sometimes there really are monsters under the bed!

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Todd Ordal is President of Applied Strategy LLC. Todd helps CEOs achieve better financial results, become more effective leaders and sleep easier at night. He speaks, writes, consults and advises on issues of strategy and leadership. Todd is a former CEO and has led teams as large as 7,000. Follow Todd on Twitter here. You can also find Todd at http://www.appliedstrategy.info,  303-527-0417 or todd@appliedstrategy.info

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