Risk Management for Booksellers
- By Renee Roberts
Risk management applies to dangerous and mundane fields alike.
by Renée Magriel Roberts
Example of risk management: A NASA model showing areas at high risk from impact for the International Space Station.
I first ran into the concept of Risk Management when I wrote my first book with my first husband (so many books, so many husbands, so little time), Backgammon. Backgammon is not just a game of luck, but a strategic game, used by many individuals in the financial services industry - as well as game players - to better understand risk.
Simply put, you want to increase the probability that something good will happen to you and decrease the probability that something bad will happen to it by positioning your checkers around the board, deciding when to attack and when to play it safe, and making decisions about the stakes.
Managing risk means that first of all you have to identify the effect of uncertainty on your objectives, whether they be gaming, or business, or life, and then follow up that identification with action to either minimize risk or, on the flip side, maximize your opportunities.
While bookselling seems like a relatively safe occupation, I'm sure we can all recall instances where businesses have completely imploded: from death, from illness, from natural disasters, and from competition (bricks-and-mortar and/or internet). Play it too conservative and you can wake up to find yourself without moving inventory; play it too risky and you can lose your shirt.
We have an internet-only business. This basic decision - for us - has done quite a bit to minimize risk, not the least of which is that I can't be fired. It also means that we are reducing our overhead, and eliminating store traffic, which I once had and did not like. In-store theft is not an issue (we don't do book fairs either). This is both a personal decision and the kind of risk I don't want to manage.
Because we began the business with our own collection of books, it has the strength of our own interests: biographies, children's books, twentieth-century literature, medieval studies, music, and books about science. We've been in business eight years now, and have increased our holdings to other related categories, but not specifically into areas in which we have little or no knowledge. We want to be able to have a reasonably intelligent conversation with our customers.
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Risk Management for Booksellers
- By Renee Roberts
Business is always a balance of risk vs. reward.
Deciding not to specialize was another risk management decision. It's great to have those vast inherited collections of books about trout fishing, but then you have to know something about that area. Similarly, I avoid sports pretty much (sorry) because I'm not interested in it. That means for us that at the risk of losing the avid collectors in these areas, we've chosen to appeal to a wider audience. In my opinion, the larger the customer base, the lower the probability of some disastrous drop in some subject that causes your sales to stall.
When we decided to sell books beyond the United States we took a number of steps to mitigate risk. We figured out the best way to ship books depending upon their weight and value and size, we insure them against loss and we do not sell to the usual suspect list of countries which seem to house the greatest number of book thieves. We've taken a hit from time to time, but most has been covered by insurance.
The other aspect of selling abroad (both from US sites, like amazon.com and European sites like zvab.com [Choosebooks]) is the currency market. Currency rates related to each other are not fixed; currencies are and can be manipulated so that their goods cost less money. In a currency war, large swings beyond the usual ups and downs of the foreign exchange market can occur, either making your off-shore sales currency holdings worth more or less.
We mitigate that particular risk by taking care of our own foreign exchange trades and then moving money from one currency to another when we can do better. At the same time, we are maximizing our sales by exposing our inventory to European and Asian markets.
Perhaps the most extreme risk management tool we are using is to drastically reduce our costs by my taking a job. I discovered that in fact I could run the business pretty much at night, with the help of an assistant during the day and my husband handling the shipping and receiving. This enabled me to take a job writing grants for a non-profit agency which covers our two biggest bills: the mortgage and our health insurance. That means that even when sales took a real dip during the economic drop - and they certainly did - we were never in danger of losing our business, not to mention our home. And, as a special bonus, I do have the satisfaction of doing work clearly for the benefit of the community which is very much needed.
Managing risk also means doing the bread-and-butter activities, like backing up your computer, training other people to run the business in the event of unforeseen events and keeping your inventory safe from the environment.
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Risk Management for Booksellers
- By Renee Roberts
Careful risk management forms the building blocks of a successful business.
It means shipping products that are carefully packaged to avoid damage, double-checking that the books are the right edition and quality the customer expects, and following up orders in a timely manner so they are not lost. As any sales professional knows, the cost of repeat sales is tiny compared to the cost of the first sale and so we try to reduce the risk that we will lose the customer by being sloppy.
Managing risk also means accepting a certain amount of risk as the cost of doing business and budgeting for it. I remember speaking to a gentleman who owned a medical tool manufacturing firm and who served as kind of a mentor when I had a different business. He explained to me that when somebody is hurt on the operating table everyone is sued, including the manufacturer that makes the tools. He didn't think it was right. He didn't think it was fair. But he budgeted about 10% of his gross to pay off litigants.
There is no business activity of which I am aware that does not carry risk right along with it. But with careful identification, analysis, and choosing to either avoid, mitigate, or accept risk, bookselling can not only be considerably less stressful, but more profitable and less subject to extreme conditions.
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