Can a Small Business Be Prepared for Everything? A True Story.

As a compliance and risk management professional I am irrefutably passionate and excited about compliance and helping businesses comply with their legal obligations (rules, regulations, contract T&Cs, etc.).  As such, I wanted to tell you a true story about what a business woman told me that happened to her business, and lessons learned.

Compliance Story

I met Kim at a conference a couple months ago.  We exchanged pleasantries and talked about where we worked, what we did (professionally) and how things were going.

When I told Kim, I was a risk management and compliance consultant, she became indignant and said – “Ha!  Risk Management!  What a farce!  Businesses can’t prepare for every risk nor can they prevent it from happening.  I know from experience!”

Apparently, Kim and her partner had recently purchased a small IT business.  She told me that the prior CEO had run the company into the ground and mismanaged the company.  Kim and her partner bought the company because they wanted to enter the IT industry that is experiencing dramatic growth in the area and they wanted to start a second career.  Knowing that the company had been mismanaged, they assumed the risk of the existing and potential problems that came with the company.

Shortly after they purchased the company, two of the key IT engineers quit without notice and bad-mouthed the company and management to customers saying, among other things, that the employees were mistreated.  Employees had not been given raises or bonuses for years.  They blasphemed the company to customers, vendors, and other employees.  The result was that Kim’s company lost customers, good customers, and the Company lost revenue.  To make matters worse, more employees left the Company putting Kim and her partner in peril because without the much-needed manpower, who would service the remaining customer accounts?  It took Kim months to regain customer and employee trust.  It took more than a year for Kim’s new IT business to recover the profits it lost from this unfortunate situation.  After this experience, Kim believes it wasn’t their fault as new business owners and blamed the previous management.  Kim believes there was nothing they could have done to prevent this incident from happening.  I respectfully disagree.

Lessons Learned:

It is possible a situation like this could have been prevented if Kim and her partner did a risk analysis of the business operations associated with the purchase of the company.  Buying a company with known management problems screams of business risk.  Kim could have taken the following practical steps:

  1. Take a deep look into the company financials and determine which are the higher valued customer accounts and ensure their accounts are given optimum customer service.
  2. Do a deep dive into the company’s operations and identify any weaknesses or potential risks in the various departments.  In Kim’s situation, knowing that staff had not received raises or bonuses in five years should have given her the insight to look into the HR department.
  3. Had Kim and her partner done #2 above, they could have met with the employees, encouraged them of the new and improved changes the new management was implementing and offer them something of value to motivate them to stay.
  4. Kim and her partner should have Immediately put into place employee confidentiality agreements.  Had they done so, Kim could have made a claim against the disgruntled engineers who left.  In this regard, Kim would make a legal claim against the engineers for breach of the confidentiality agreement for bad-mouthing the company, and possibly recover damages but certainly cease and desist the engineers’ actions.

Kim suffered an unfortunate situation, but in my professional opinion, much of this could have been avoided by doing a simple risk analysis before or shortly after purchasing the company.  Risk analyses and risk assessments help companies identify various risks and find ways to mitigate them before bad happens.  Yes, it’s possible that bad could still happen, but a well-informed company can put into place measures to minimize damage while continuing to maintain its operations.

There’s more that Kim could have done.  If you’d like to know what, how, or discuss the benefits of a risk analysis or risk management in general, and how it can help your company, don’t hesitate to reach me at the info below.


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