How Anticipating the Worst Can Help You Succeed

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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No one would recommend a Chicken Little approach to running a business. Successful entrepreneurs don’t generally spend all of their time obsessing about what might go wrong. But there’s a fine line between maintaining healthy optimism about your business’s future and wearing blinders that prevent you from seeing challenges down the road.

One of the most positive steps you can take to ensure that your business grows is looking ahead to potential challenges, say experts. If you plan ahead, you can act now to prevent them or come up with a rational plan to deal with them if they do happen. It’ll give you a real edge against the competition. “Most businesses don’t spend any time on risk assessment,” says Nat Wasserstein, who helps companies that need turnarounds as a crisis manager at Lindenwood Associates, based in New York City and Upper Nyack, N.Y. Here’s how to analyze your business’s risks — and come up with a plan to address them — in just one afternoon.

Let Your Imagination Run Wild

Power up the coffee maker, sit down with your senior team, and, on a whiteboard, jot down any disasters you can imagine disrupting your business — from a freak storm destroying your office to an embezzler raiding your bank account. “As insane as they may sound, just put them down,” advises Wasserstein. Once you get the more unlikely scenarios out of the way, you’ll be primed to move on to more realistic possibilities. Those might include losing a big customer, having a critical supplier go bankrupt, or losing a safety certification because of an unanticipated quality control issue.

Figure Out the Odds

Many entrepreneurs find that the 80-20 rule applies when it comes to potential risks, says Wasserstein. You’re likely to find that one or two scenarios make up 80% of the risk the business faces. For instance, you might find that the problem most likely to disrupt your business is losing a big customer. Ask your senior team to help you estimate the odds that such a problem will happen. If all agree that the odds are pretty high — say 25% or more — you’ll know where to direct your preventive efforts, says Wasserstein.

Encourage Debate

What if you don’t believe that a problem is a risk, but someone on your team does? Make your case to that person about why it isn’t a likely possibility and ask him to poke holes in your argument, advises Lawrence Polsky, managing partner of PeopleNRG, whose Princeton, N.J. consultancy has developed a Worst Case Scenario Tool to help clients plan ahead for potential challenges. Be prepared to revise your opinion. “Often you don’t know you have wishful thinking,” he says.

Create a Plan

After you’ve identified your major risks, come up with a creative strategy for reducing them with your team, advises Wasserstein. For instance, say you know you’ll have to lay off employees if you lose a client who contributes $500,000 a year in revenue. You may need to do more to retain that customer. Think about what missteps might cause you to lose the client and how you can prevent them from happening. For instance, says Wasserstein, you might ask: “If he wants deliveries in seven days and you’ve been delivering in eight to 10, what can you do to make sure you’re always under seven days?”

Once you have a plan in place, commit it to paper so your team knows who is responsible for each step, says Wasserstein. Then make sure your managers act on the plan. That way, instead of laying awake nights worrying about “what ifs?” you’ll be able to be able to free your mind to dream up growth strategies.