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Risk: A Lesson Still Not Learned

Greensill: Opaque and complex...CDOs anyone?

“Be careful who get into bed with“, so the old saying goes.

High-profile politicians, celebrity financiers and all kinds of other people have been lining up to get on board the financing miracle that was Greensill Capital.

However, those people - 1 in particular - are not quite so keen to comment after its implosion last week.

Greensill’s smoke and mirrors model sparks memory of CDOs which triggered the 2008/9 financial collapse. In his famous letter to shareholders at the time, Warren Buffett referred to them as Financial Weapons of Mass Destruction.

Their business model, in reality, was just another risky financial product that few people truly understood.

Why do so many people buy stuff where they don’t truly understand the risks they’re taking - especially big financial ones?

The numbers being racked-up - at $110 Billion - are as stellar as the list of names suffering the exposure: Credit Suisse, Archegos and SoftBank all said they were responding to “considerable uncertainties with respect to accurate valuations”, according to The Wall Street Journal.

Credit-Suisse also said it had concerns with Greensill’s significant exposure to a single client, UK-based steel magnate Sanjeev Gupta.

What has all this got to do with Sales?

It’s this: EcoSystem Risk

Sales is a key pillar of any business’ EcoSystem; along with customer service, supply-chain, marketing and operations.

Credit-Suisse were concerned with Greensill’s over-reliance on 1 major client defaulting on its obligations. Other relatively recent examples of this type of risk include Lehman Bros, Carillion, Enron - all failed due to 1 catastrophic event in their EcoSystem bringing down their companies like a proverbial House of Cards.

Business Lessons from the Drugs Trade

Even the drugs trade has resilience built into its business EcoSystem. In this case, its sales and distribution network.

I discovered this in 2017 negotiating the release of a prisoner from a Colombian jail (I know).

”Product“ is distributed in 50 individual shipments: 1 x 50kg shipment and 49 micro-shipments each comprising 1kg of product. This way, if any 1 shipment is disrupted, 49 others will likely still get through.

Can you learn anything about your organisation’s EcoSystem arrangements from these examples?

Are YOU:

  • Overly dependent on 1 particular client, sector, territory or supplier for your business?

  • what happens if that 1 client disappears for some reason or that 1 “highly improbable“ risk is realised

  • What are you going to do about that dependency?

If you‘re comfortable that everything’s perfect, that’s great.

If you’re worried about any of those elements, why not message me for a chat?

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