A business risk that we ignore, even though it is near-certain to happen, is what Michele Wucker calls the “gray rhino” in her excellent book by the same name. After reading Wucker’s book, I arranged for her to meet with our executive team and company presidents. We don’t want a gray rhino trampling over one of our companies.
The gray rhino is a metaphor for risks that we acknowledge but fail to act on. Though it would be smart to deal with these threats head-on, we ignore them. The gray rhino finally gets our attention when it starts charging at us.
Wucker’s concept resonated with me partly because I have spent much of my career in mergers and acquisitions. Our team has reviewed a lot of deals where the business owner (the seller) ignored a gray rhino until it was too late. By the time I met with the owner, he was trying to sell a company that either had a gray rhino charging or the damage already was done, leaving the company a shell of its past self. The decision to ignore the risk significantly reduced the value of the company, which is often also the accumulation of the seller’s lifetime of work.
What are some examples of potential gray rhinos in your business?
I have written many times about how spending a week in Silicon Valley a few years ago shifted my thinking about the impact of technology on businesses, and set our company in a new direction. Increasing computational power is driving exponential changes that are converging to affect every area of our lives. If your company is not preparing for dramatic technological change, the gray rhino will trample you.
Retail Market Normalization
The impact of Covid-19, and the remarkable increase in money supply unseen since World War II, is driving significant retail demand. If your company is not doing well now, you likely have a significant problem with your business model. Some organizations are allocating capital as if this new demand will be permanent. While I hope it is, there is a high probability that market normalization is actually a gray rhino, and that companies ignoring it may end up with fixed costs they cannot afford in the future.
Employee Acquisition and Retention
Ask 20 CEOs about their biggest challenge, and at least 15 of them will say it is finding and keeping good employees. Staffing is a recurring problem and offering higher pay or bigger signing bonuses is not the long-term solution. Real solutions include creating an environment where employees know they are sincerely cared about and valued as individuals, and where the culture points to a higher mission. Current and potential employees know that a high-care, big-mission environment is unique, and they won’t want to leave.
Many companies, particularly those where the owner serves as the CEO, do a poor job with leadership succession. Often, the owner feels invincible or just doesn’t see the need to worry about an issue that will be someone else’s in the future. The lack of a succession plan can be a gray rhino that causes significant damage to an organization. If your company is not focused on succession planning, look out — you can be sure the gray rhino will charge.
Consumers are becoming much more focused on what companies are doing to be good citizens. Part of this consumer focus is demographic, as younger buyers become more important in the marketplace. Some of it is just increased consumer awareness. Being socially responsible and emphasizing sustainability or service in your community are no longer niceties; they are expected. Consumers now consider corporate values and behavior before making purchasing decisions.
These are just a few examples of potential gray rhinos, but I am certain your organization has additional ones that should be considered. Maybe they include competition or other changing market dynamics. The key to to avoiding gray rhinos is to identify them and address them.
Often, even after the gray rhinos are identified, organizations have trouble acting. Wucker’s book identifies five stages of reaction after a threat is identified: denial, muddling, diagnosis, panic and action. The problem is that by the time an organization has reached the panic stage, any action is irrelevant. Leaders need to avoid the denial stage, accept the reality and act early.
At Correct Craft, we have a matrix to identify risks, their probability of occurring and their potential impact. Even with the intentionality we give to risk analysis, we still missed anticipating the pandemic. (There were indicators that one would occur, including several close calls during the past 20 years, and many smart people were warning about one.) Although no one always gets everything right, you can significantly improve your probability of managing risks by being intentional. And that’s the key to increasing our actual success.
Don’t think that you have nothing to worry about. Identify and act on your gray rhinos. Your company will fare much better in the long run.
Bill Yeargin is CEO of Correct Craft and author of the leadership book Education of a CEO.