When I started PiCK and my cousin Matt and I started BottleKeeper, I knew from previous experience that there are few things that can have a more damaging effect on a burgeoning small business than an unintended consequence. Learning how to identify and prevent potential unintended consequences has been hugely important for me as an entrepreneur, and I assure you, it needs to be important to you too.
Say, for example, that you spend your life savings to create a wonderful new product that cures cancer. After all of your money on research and development has been spent, you discover that although your product does indeed successfully beat cancer, it causes Alzheimer’s disease.
This unintended consequence just cost you your company.
Unintended consequences are, by definition, tough to avoid. Although most are thankfully not as severe as the previous example, even the smallest unintended consequences can cause serious damage. So how can entrepreneurs identify, prepare for and create strategies that limit their exposure to these demons? Three tips:
1. Be paranoid.
If it can go wrong, it will. The only real way to get a handle on these issues is to be as paranoid about them as humanly possible. You must constantly ask yourself, “What if?”
As you develop a new product, for example, ask, “Who am I going to seriously offend and is that a bad thing? How is the end user going to injure themselves or someone else? What if I set my price too high or too low? How or why will someone attack my brand?” Whether or not these things come to pass, it’s your job to figure out how to prevent or prepare for them.
You must be both logical and creative when thinking of these “what if” situations so you can begin creating solutions. Compile a list of every possible answer to these questions and adjust your product or market strategy around mitigating these risks. Remember, even the most minute details have the potential to explode in your face.
2. Create solutions to problems before they exist.
You can’t just think a couple steps ahead. You must think miles ahead. Well before you are faced with a problem, it’s imperative that you are proactively identifying solutions and building your products and processes around them.
To create solutions, put yourself in the shoes of every person or entity that you do business with or employ, regardless of whether you believe those changes have the slightest potential to effect them. If you sell a tangible product, think about how your customers, manufacturers, distributors, and even your delivery drivers, packaging specialists or sales people would view it. If you make an alteration that you think improves a product or process only to find that the change increased your production time by 15 percent, you’re in trouble. You’ve got to think ahead.
3. Diversify your revenue.
A missed unintended consequence could derail your income tomorrow. So, while you’re being both paranoid and proactive in beating the unintended consequences to the punch, it’s important that you plan out the future of your business while remaining open-minded. More to the point, you need to diversify your revenue streams. Right now.
This doesn’t mean that you should start selling lollipops if you’re in Internet technology; it means that you should be looking at other verticals within your industry, or even similar industries, to potentially partner with or attack.
A great example of the importance of diversified revenues comes from my friend Hayes Drumwright, the CEO of Trace3, an IT consulting company based in Irvine, California. After starting his prior company, that quickly grew to over $30 million per year in sales, the dot.com bubble burst and his clients went bankrupt. He wasn’t diversified and, as a result, his company vanished in months. Fortunately, Hayes learned from his mistakes, started Trace3 with $100, diversified by partnering to enhance their value proposition and grew quickly to generate over $350 million in sales in 2012. Learn from Hayes’ mistakes so you don’t replicate them.
There’s no question that unintended consequences can do serious damage to your business and your brand. Fortunately, if you practice and develop your strategic problem solving skills and remember to stay both paranoid and proactive, over time, you will become an expert at avoiding them — and improve your chances of success.