If Your Business Makes Less Than $10M… You CANNOT Afford to Make This Mistake

Summary

• Businesses making less than $10 million per year should avoid keyman risk. If one person is vital, your business is more like a high-paying job than an asset. Replace key roles with systems and redundancy.
• To address keyman risk, create processes and departments like R&D that allow transferring vital skills and operations to others in the business. This ensures the business can run without depending on a single person.
• Identify keyman risk areas: marketing, sales, and product/service delivery. Reducing dependence on one person in these areas makes the business more stable and sellable.
• Single Channel Risk occurs when most customers come from one source. To prevent this, diversify your marketing and lead acquisition strategies. Build multiple channels like organic content, ads, or alternate platforms.
• Key Customer Risk happens when a large part of your revenue comes from a few customers. Reduce this by acquiring more customers to balance the revenue and potentially locking key customers into long-term contracts.
• Single Vendor Risk happens when a major operation relies on one vendor. To mitigate this, have backups for critical vendors, negotiate good terms, and consider bringing essential functions in-house.
• Always ensure redundancy in critical business areas; it acts as insurance against unexpected disruptions and provides leverage in negotiations.
• Before expanding into new marketing channels, ensure you understand the core processes, and use someone experienced to manage the existing channel to avoid business disruptions.
• When considering taking on large customers (whales), evaluate if it changes your business model unsuitably or if it's sustainable to get similar customers.
• Align incentives with key employees or partners, and reduce risks by setting up clear contracts and mutually beneficial agreements.

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How To Take Action

I would suggest implementing some simple but powerful strategies to reduce risk in your business. First, think about any key person or "keyman" risk. If your business depends on one person, you're at risk. Make sure you have systems in place. Write down the steps for important tasks. Create a 'how-to' guide for tasks like marketing, sales, or product delivery so others can follow.

Next, check for "single channel risk." Don't just rely on one way to find customers. If all your clients come from Facebook, what happens if your account gets banned? Use different ways to get customers, like emails, ads, and even organic content.

Watch out for "key customer risk." If losing one client would badly hurt your business, you'd need more customers. Try to have long-term contracts with big customers to make sure they stay. Also, getting more smaller clients can balance the risk.

Also, think about "single vendor risk." If your business relies on one vendor for important services, have a backup plan. See if you can have two vendors or complete work in-house.

Lastly, always ensure redundancy in critical business areas. This means having a Plan B or a person ready to step in if something or someone crucial fails. It’s like having insurance for your business, making it strong and stable.

Remember, these are low-cost and high-value changes that can make your business more stable and easier to run even when you're not around. By doing these, you turn your business into a real asset, not just a job.

Quotes by Alex Hormozi

"If you have keyman risk, you don't have an asset, you have a high-paying job"

– Alex Hormozi

"The more valuable you become, the more of a key man you are"

– Alex Hormozi

"Making a business that is sellable makes it better for anyone"

– Alex Hormozi

"Welcome to business, you have to think long term"

– Alex Hormozi

"Having multiple processors that are approved gave me leverage"

– Alex Hormozi