Leadership in SME’s part two – Management of risk

Part one of this series explored how business owners of SME’s might feel under pressure to be entrepreneurial, to focus on innovation and how this might distract them from the core task of simply managing their business well and to profitable effect.

The article explained how entrepreneurial courses can be broken down into component parts, with effective management being the first part. The second part is the ability to manage risk and uncertainty.

Risk is often considered by naïve managers to be something negative and to be avoided. The reality, as good entrepreneurs tend to intuitively grasp, is that taking risks is sensible if the potential reward is suitably profitable. A business coach will start to help the manager make good sense of the ‘risk appetite’ of the business (and the owner) which might be risk-taking, risk-neutral or risk-adverse.

None of the risk appetites are any better or any worse than the others. Good entrepreneurs instinctively understand their particular risk appetite and will build their business system to meet. The business coach will help the owner/manager make the process of managing risk more systematic, clear and less mysterious. Putting in place processes to identify and control risks will lead to a greater chance of getting bigger rewards, that being more profit.

The business coach can also support the owner/manager in communicating, if necessary, the organisation's approach to risk amongst its staff. This is known as embedding risk into the culture of the business and can often be a delicate process that is therefore often not tackled by the management. That would not be effective management practice.

While risk is capable of being measured and managed, uncertainty is different. By its nature, uncertainty cannot be known or identified in the same way. It has been said the mark of a good leader (and therefore entrepreneur) is that they ‘know how to be when it is not clear what to do’ - that being that they can stay calm, cool-headed and steer the ship through the uncertainty.

The ability of the leader to do this could be termed their ‘inner stance’ and is something that is often developed through leadership coaching.

The second role of the SME leader is to develop a calm inner stance. Then the leader will have the time and space to focus on profitable innovation.