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Reducing Risk To Grow Wealth

Many business owners are so obsessed with growth that they overlook opportunities for creating business value by reducing risk.

Reducing Risk To Grow Wealth

A business doesn't have to make a lot of money to be worth a lot of money. One of the best examples is Thawte Consulting, which Mark Shuttleworth famously sold to Verisign in 1999 for an eye-watering $575 million even though its revenue was a tiny fraction of that value.

(Thawte Consulting is one of the real world case studies that we cover in detail during our Ownership Wealth & Freedom course)

So how can you increase the value of your business (and the wealth that it can create for you) without necessarily making more sales?

One option is to reduce risk, and this is probably the most overlooked value creation opportunity. All things being equal, a low risk asset will be worth more than a high risk one because risk jeopardises future ownership earnings.

(Would you rather play a slot machine with a 50% payout probability, or one with a 1% probability, assuming the payout from both was identical?)

The biggest risk in most owner-run SMEs is owner dependence. Entrepreneurs typically start out wearing many different hats, and this rarely changes even as their companies grow. Critical operating capacity would be lost if anything should happen to them, which presents a huge risk.

(If you couldn't work for several months, would your business still operate like a well-oiled machine?)

The only way to reduce owner dependence is by delegating more of your work to your team. This, of course, is a lot easier said than done. Most owners understand the importance of delegation and want to do it, but a variety of personal, interpersonal, and environmental constraints sabotage their good intentions.

A good starting point is auditing the work that you currently do and clarifying whether you should be doing it (or whether it is even worth doing in the first place). This is nearly always an eye-opening experience. If you aren't sure where to begin, check out this recent Harvard Business Review article which includes several self-assessment questions that can guide your appraisal.