Whenever anyone goes into business, they face a series of risks. The form those risks take could be anything, from financial to legal. Company leaders, therefore, need to take a precautionary stance when driving their enterprises forwards. They need to come at them with the view that something will probably go wrong at some point.
The precautionary principle in business is an interesting concept. We often hear about how entrepreneurs are “risk-takers” and willing to do the things that nobody else is prepared to do. But when you actually look at how these people make their decisions, they’re always far more risk-averse than you’d expect. There are very few mavericks out there.
In this post, we discuss the importance of the precautionary principle and how you can put it into practice in your enterprise.
What Is The Precautionary Principle?
At root, the precautionary principle is the idea that you shouldn’t take any unknown risks.
The reason a lot of entrepreneurs are successful is that they’re able to see that certain activities are far less risky than others. Their activities seem maverick to the people observing them. But the entrepreneur knows deep down that they’re not, and feels confident in taking them.
Importantly, these are known risks. The entrepreneur knows ahead of time how things are likely to turn out and derives confidence from that knowledge. Call it “special insight” if you will.
However, there are also a lot of unknown risks in business, and these are often the most dangerous. Most successful entrepreneurs avoid them like the plague if they can.
The precautionary principle says that people who want to start a small business should avoid these unknowns and not charge headlong into them. Thus, if you’re not sure about whether trying a specific tactic is risky or not, the precautionary principle says you should avoid it.
How To Implement The Precautionary Principle In Your Business
So what does this look like in practice? How can you use precautionary thinking to your advantage and mitigate the risks you face?
Develop Your Processes In Advance Of Your Launch
Many new firms like to conduct a “soft launch” before selling to the mass market. This way, they can test their systems and ensure that they can cope, once all the real orders begin rolling in.
Taking this approach means developing and testing all your processes in advance. You want to make sure that everything goes smoothly and that you haven’t overlooked anything important.
Publish Clear Guidelines To Staff And Vendors
Staff and vendor risks are considerable for most businesses. If people in your organization misbehave, you could be on the hook. That’s why publishing clear guidelines and policies are essential before you begin trading. If a matter did ever wind up in a court, you’d want documentation on your side providing that you took risks seriously, even before you hired anyone.
Involve All Your Stakeholders In Discussions
Creating a business that abides by the precautionary principle generally means collecting as much information as possible about your enterprise. As a leader, you need to be able to view it from multiple perspectives so that you can critique it properly.
The best way to do this is to include all your stakeholders in your discussions. Frequently ask customers, staff, and even board members for their opinions on the operation. Get them to assess the risks that you face and the resources you should use to mitigate them.
Foster A Culture Of Openness
Companies start going wrong when they develop secret cliques or information ceases to flow from one person to another. Leaders following the precautionary principle, therefore, should seek to foster a culture of openness on their premises. It should be easy for anyone to come forwards and voice their concerns about the direction the company is taking. Remember, employees on the ground are often able to see problems coming down the pike far ahead of their seniors. Once the C-suite or board finds out about it, it’s usually too late.
The art of running a business is finding ways to take known risks that are less risky than other market participants believe. Elon Musk, for instance, set up an electric car business he had good personal reasons to think it would succeed. It turns out, in hindsight, that his analysis was correct. Battery prices have come down, making EVs and commercial viability for the mass market.
Your company needs to take a similar approach. You want to find risks that you know and understand so you can get ahead.