Be like Raspberry Pi and take risks, but manage them carefully - Sunday Times

UK businesses too often let risk freeze them into inaction. By being bolder, while acting early to minimise the dangers, they could reap the rewards of growth

Since the age of 14, I’ve been taking risks in business. That was when I started my first company, selling brightly coloured ear-rings that had been fashioned out of fishing tackle. I remember friends and family looking at me quizzically: “Are you sure about this, Richard?” But the only risk, as I saw it, was my entrepreneurial zeal getting in the way of homework. I felt sure my unique product would attract customers and make a profit. I was right.

And that’s how to see risk — in a calculated, measured way. Everyone assumes that entrepreneurs are addicted to risk, as if walking that fine line between success and failure is something we crave. That’s only partly true.

I don’t think entrepreneurs are any more addicted to risk-taking than most people. Instead, we’re more deliberate in how we approach it. Or at least, I am now. Looking back at my 40-year career, some of the chances I took were reckless. I didn’t know when to say no. One example was launching our US HomeServe business in Florida because of someone’s say-so, without truly investigating if that was the ideal place. It wasn’t, and we swiftly moved closer to the economic hub in the northeast of the country.

Entrepreneurs don’t allow failure to knock them down for long. Risk inevitably means making mistakes, but every mistake you make is one step closer to achieving your goal.

Today, I’m rigorous in assessing the data before I even consider taking a chance, immersing myself in risk management in a way that I didn’t before. It used to be a box-ticking exercise for me, too often treated as a compliance issue — what risks could be controlled, avoided or resolved, the external risks looming on the horizon, strategic risks that could scupper our goals. I was a cynic about risk management, now I’m a believer.

Whether you are the chief executive or the leader of a department or small team, you can choose only to pay lip service to risk and go through the motions of risk reporting, or you can take it seriously and use the process to proactively manage the main dangers and take avoiding action before they happen. Spend time doing so now and you’ll ensure you don’t end up firefighting when problems do crystallise.

Listing risks isn’t red-tape paperwork but essential for growth. For instance, in our home emergency cover, HomeServe ran the risk of relying on a single supplier — an underwriter. It meant they would be in control of the relationship and could change the terms of our agreement at any stage. So we developed relationships with another underwriter to make sure that we wouldn’t be beholden. We didn’t wait for the problem to materialise; we properly assessed, planned and took early action.

Good leaders are better at recognising risk and, more importantly, managing it. And by measuring, debating and analysing risks regularly, we do more than protect reputations and minimise losses. We encourage innovation and growth, enhance decision-making, confront biases and challenge assumptions.

Too many British businesses are often blinkered into thinking that the biggest risk is to take action. But with the dizzying speed of technology disrupting so much of our lives, it’s inaction that is the biggest danger, because this is when you get left behind by those making faster decisions. The opportunities are there and the rewards are great, but it requires us to think of risk as desirable rather than avoidable.

We need to be bolder — to nurture a culture of experimentation where we’re unafraid to take risks, constantly assessing, pivoting and then improving. The key is to keep those risks small by testing before committing big resources. I don’t want to put anyone off founding their own business, but the brutal truth is that about 60 per cent of start-ups fail within three years and only 3 per cent of those that succeed grow to being a mid-sized company turning over in excess of £3 million and employing more than 15 people. Those businesses that make it to listing on a stock exchange will most likely go from no risk management to proactive and extensive risk management very swiftly.

For instance, when tech company Raspberry Pi floated earlier this year, its prospectus carried almost 40 pages of risk-management issues, while the average FTSE 250 company will have about 30 pages on risk in its annual report. One of the most recent HomeServe annual reports carefully set out, over six pages, how we measure and mitigate risk. Smaller private businesses should include a discussion of risks in their bimonthly board meetings and tackle the top ones.

Proactive risk management is a technique I’ve gradually learnt and — in this new phase of my career, helping others achieve their growth ambitions — I’m using it more wisely.

Successful founders and leaders are not simply buccaneers blinded to realities, but have a deep understanding and appreciation of risk and reward. The problem is that corporate culture has reduced risk-taking assessments to a box-ticking culture where we’re not analysing it properly.

The bigger companies get, the less able they are to balance risk and reward, and the more protectionist instincts come into play. We need to be more daring, analysing how to take advantage of risk, working out the upsides and the down, where rewards lie and where things are stacked in
our favour. That’s not being reckless; that’s being smart about the risks worth taking.

And the ones not worth taking? Well, I can think of one. Working for another person and adapting to their whims and philosophies — not feeling like you have control over your destiny. Even 14-year-old me was reluctant to take that kind of risk.

Richard Harpin is founder and chairman of HomeServe and Growth Partner, and owner of Business Leader magazine