Understanding Risk

For creative business, risk abounds and, to the extent you are asked to absorb it, you need to get paid appropriately.  What is risk?  Not odds of success (like rolling the dice in Las Vegas), neither a safe or chancy bet.  Rather, risk is the acknowledgement and categorization of factors outside of your control that affect your ability to succeed.  Without question, there exists (persists?) a fundamental misperception/misunderstanding/mispricing of risk in many, if not most, creative businesses.  I cannot hope to solve the issue here, but instead intend just to open the dialogue so that you can see your creative business in another light, work to reduce your risk (or at least understand it a little better) and give yourself a better chance to succeed.

The old axiom is true.  Time is money.  The more time you have to do just about anything the less risk that exists.  Add in market power (i.e., volume) to the equation and the axiom becomes even truer.  A quick example: you are a stationer and you have to buy special paper.  Presuming your business is big enough to really matter to either your wholesaler or paper mill, the earlier you order, the cheaper your price should be.  Why?  Because your order represents a risk-reduction to your wholesaler and/or paper mill.  You have removed the risk of your paper sitting on the wholesaler’s shelf and/or factory floor.  In other words, the factory and wholesaler can go ahead and make more paper than you ordered because you took away the risk of them not selling what they needed to produce the paper in the first place.  Your early order increased their chance of long-term success.

Now, the factory and wholesaler have absolutely no incentive to explain how you are helping them reduce risk and will probably tell you all day long that it does not matter if you order six months in advance or six weeks, same price.  Better for them if you overpay.  But it does matter, risk is risk.  If you do not get paid for the reduction of risk you offer when you buy early from your suppliers, your clients lose.

For those of you who do not sell stuff as part of your creative business, the above example still applies.  It just applies to the timing and certainty of decisions.  For instance, a project can take six weeks to get done if you have full cooperation of a client, but ten if they are wishy-washy.  Arguably, the responsive client should reap the benefits of being, well, a responsive client far more than just getting their project done more quickly.  You can say that the same $10,000 project, six weeks or ten weeks, is the same and you would be wrong.  Risk has to be paid for, either by you or your client.  And, in this example, the wishy washy client is supported by the responsive client (i.e., they pay for the risk), when it most definitely should be the other way around.  If you do not acknowledge risk, the squeaky wheel will get the grease when it should be left to rust.

As the $10,000 project above shows, if you do not have a mechanism to compensate for the risk you take, you will always be gambling.  Yes, there is no such thing as certainty, but your creative business is not a roulette wheel in Vegas either.  When you know where risks exist, timing of decisions, having to start over, last minute changes, etc., you have to account for them up front.  To do that, you have to understand what is critical to your and your creative business’ success and be ever vigilant about protecting this value.  And the best way to protect the value is to price for it.  In the $10,000 project example, you can say if decisions are not made timely, you will either be able to stop or charge more money to the client.

Yes, you can take the foregoing to the draconian and say that if a client steps a millimeter out of line they will pay pay pay.  So not what I am talking about.  Instead, what I am talking about is taking risk where you should and doing your best to avoid it where you should not.  Take risk where you are in the best position to identify and control the risk.  If you cannot control it, you should not be taking the risk.

It is why I advise working so hard to stand for what you and you alone believe in, seeking only clients that most value your art and the artistry of your creative business.  Then you will be evaluated only on your ability to understand this client and not on your ability to ignore risk and survive.   This should truly be the only risk you take.  Better to stand behind your art than to watch your business suffer while you wait around for someone else to decide your fate.