I met former Israeli Special Forces soldierItamar Maraniin Thailand a couple of years ago. He knows everything there is to know about risks, danger, and how to analyze things.
One thing we talked about in-depth was how to properly analyze risk.
This is the same framework that Special Forces and counter-terrorism groups use to analyze whether or not something is actually risky.
I’m going to break down the overall concept, and then share how I used it in a real-life situation I encountered with my business recently.
How to Analyze Risk the Special Forces Way
There are two components that cause any situation to be deemed high or low risk: danger and control. The delta between the two is the actual risk.
There are three components to think about in terms of danger:
- Magnitude: How severe would it be if it happens?
Immediacy: When could it happen?
- Probability: How likely is it to happen?
The measure of your ability to affect the situation if it were to occur. There are four different methods of control to think about:
- Distance:Can you create enough distance between yourself and the danger?
- Barriers:Can you put a barrier between yourself and the dangerous situation?
- Deterrents:Can you deter it if the danger does present itself?
- Countermeasures: How will you combat the danger if it does reach you?
Using This Method in Real Life
A few years ago the city of Los Angeles introduced a legislative proposal that would ban Airbnbs in the city. This was a potential danger for my remote local cleaning bizMaidThisas at the time Airbnbs represented 80% of our revenue.
Instead of freaking out about it, I put my Special Forces decision-making cap on. WWID (What Would Itamar Do)? Here’s how I analyzed the risk:
I first assessed themagnitude. Airbnb business in LA brought in around $80k in revenue per month for us. My estimate was, if the new law passed, this number would go down to $10-$20k per month — a massive drop. The business wouldn’t go under because we had some regular residential customers. But we would lose our competitive advantage. I assessed the magnitude at around 6.5. It’s not a 10/10 catastrophe, but it’s big.
Next, I thought about theimmediacyof this happening. I knew, based on the way things were going, that it would be 1-2 years before any decisions would be made. So I had at least a few years to prep.
Then, I assessed theprobabilityof this actually happening. If it did, there was a 100% chance that our Airbnb business would decrease. But I thought to myself, what are the chances that this ordonnance passes, which would completely ban Airbnbs as opposed to putting a time limit on them? The probability of a complete ban was around 10% in my mind. I thought there was a greater chance of something like a 30-day minimum on all Airbnbs. All and all, I thought there was a 30% chance of something really big happening.
Finally, I had to think about what kind ofcontrolI would have over the situation:
- Distance:I could start a business outside of LA as well as double down on clients who wouldn’t be affected by the law: residential and corporate customers.
- Barriers:I could lobby with organizations that were fighting against the laws and support them however I could. I could also send out a newsletter to my readers to encourage them to fight against the law.
- Deterrents:As this danger was a potential law, there wasn’t much I could do to deter it, and I recognized that.
- Countermeasures:If the law was passed, the only thing I could really do was support lobby groups that would fight to overturn it.
It was very obvious to me that I needed to focus on the distance piece, and that’s what I did. At that point, Airbnbs were 80% of our revenue. Over the next 1-2 years we completely flipped that and now 75-80% of our revenue is from regular residential customers.
A law did pass, and I was correct in my predictions: it didn’t fully eliminate Airbnbs, but many of them were forced to have 30-day minimum rentals.
This is a perfect example of how this exercise works. I was able to identify the danger and realize what controls I could put into place. There were still risks and the controls didn’t completely negate the danger. But it negated them enough for me to know that there were measures I could put in place so that it wasn’t as risky for me and my biz.
The lesson here is to focus on the dangers where you have the least amount of control. No more freakouts for me!
Photo byCristofer MaximilianonUnsplash
This article was written by Neel from MaidThis Franchise, a remote-local franchise opportunity for people looking to escape the rate race and reach financial freedom. Learn morehere.