How to Help Your Board to Take Smart Risks

How to Help Your Board to Take Smart RisksPerhaps you, like millions of other people, saw the Oscar-winning movie Frozen. Frozen tells the story of two sisters, Anna and Elsa. Elsa is an unusual child: she can freeze things. When Elsa creates snow slides, both sisters have a blast. When Elsa accidentally freezes Anna, trouble ensues. Some boards are like Elsa. They inadvertently freeze opportunities that offer their nonprofit’s a better life.

Let me explain.

Nonprofit leaders shun risks.

Perhaps your board is satisfied with the status quo. Things are going well now after some bumps in the past. Even though everything’s not perfect, why upset the “apple cart”? “Ifs it’s not broke, don’t fix it.”

Who can blame them? Avoiding risks protects current assets. You avoid negative feedback if you fail. Avoiding change avoids consequences. For example, many nonprofits still remember the hardships and fear they faced in the Great Recession.

However, when board members avoid all risks, they freeze and kill opportunities.

Of course, no one sets off to deliberately freeze valuable opportunities. It’s just that, in advance, it’s always impossible to know the exact outcomes of our decisions. Risk requires calibration of the likelihood of an event happening and the seriousness of the consequence if it occurs. But, since most board members are busy and they are not alone in fearing the unknown, out of habit, they fail to calculate the risks and possible returns and say no.

An Example

Several years ago, CEO Laura articulated in detail her needs and frustrations with her organization’s income diversification efforts. I recommended several options, including my very affordable mentor program. Laura and her board loved the objectives and the proposed results, but the board froze and voted to invest in a new sofa for the front lobby. (I can’t make this stuff up!) By now, the sofa’s stained and worn, Laura’s moved on, and the board still struggles to grow revenue from an even weaker platform.

Growing–even maintaining organizations–requires taking risks.

Instead, too many boards out of habit avoided risks. Frozen guarantees failure. Without introducing new solutions, you get decline. Atrophy means your organization shrinks.

Taking calculated, smart risks improves decision making long-term–that is, what doesn’t and does work. Even if a worst-case scenario happens, deciding moves nonprofits to more wisdom, solutions, and possibilities. Acting on smart risks teaches us about our challenges and, from here, allows us to see new options.

Most important, low-probability/low-consequence risks often succeed. The actions create results. They solve problems. Most groups I work with see their investments returned ten times over or more. It’s thrilling to be doing something! It bubbles hope in the ranks. Working together, we take calculated risks. We measure the results. As necessary, we adjust the course to risks.

Calculate Your Risk

To succeed, take risks, and help your board to take them. How can you take smart risks? Calculate them in advance. Ingenious nonprofits choose carefully. They pick low-seriousness and low- consequence options when possible. Once they act, these advanced calculations prepare them to mitigate any risks that occur.

Got Risk? A Nonprofit Risk Mitigation Example 

Here’s an example from the Museum of Science and Industry (MOSI) in Tampa, Florida, the fifth-largest science center in the United States. Several years ago, it predicted a $40,000 budget shortfall. To solve the budget challenge, MOSI gathered a team of staff and volunteers. Participants created ten money-generating activities to reduce the deficit. Six failed. Four succeeded and closed the budget shortfall.

The most successful was built around Yu-Gi-Oh! Trading cards, which at the time were a rage with teens.

Taking a risk, MOSI marketed the first Yu-Gi-Oh! Tournament on a listserv and a press release (free except for staff time). For prizes, it bought Yu-Gi-Oh! Cards that could be sold in the gift store–mitigating the risk of the cards’ cost.

The first tournament took place on a Sunday morning when MOSI is slow. That day, MOSI admitted 400 guests at ten dollars each–an extra $4,000 for a half day’s work. Over the next months, MOSI hosted twice monthly Yu-Gi-Oh! Tournaments and helped eliminate the deficit.

Here are the ingenious, risk-mitigating repeatable tactics MOSI used:

  • Find multiple solutions. MOSI generated ten ideas.
  • Pilot solutions. Each team generated a test pilot.
  • Be thrifty. MOSI began with a one-time tournament, used trading cards for prizes, and free media.
  • Measure results. Four solutions generated income.
  • Anticipate failure. Six ideas failed.
  • Capitalize on success. As long as the fad engaged youth, MOSI held Yu-Gi-Oh! Tournaments.
  • MOSI took ten calculated low-risk actions.

Your Ingenious Risk Sweet Spot

We admire risk takers for good reasons. Risks are necessary. Risks require courage.

Not all risks are the same. Ingenious boards and CEOs calculate their risks and act to grow their organizations. To avoid freezing, explore your risks, and mitigate those you find. Be courageous. Be thoughtful and teach your board how to calculate risk.

It Doesn’t Have to Be Lonely at the Top

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