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The willingness to take risks can lead to substantial rewards in any business. Risk-taking allows businesses to innovate, differentiate themselves from competitors and get ahead of them by seizing opportunities that otherwise might be missed.

But on occasion, risks are thrust upon the business, leading to disruption rather than reward. This is what has happened with the recent tariffs on imported goods, a classic example of a major disruption that requires businesses to adapt while managing their risk exposure.

Dealing with the many effects of tariffs

The tariffs bring numerous high risks for businesses:

  • Increased costs through the higher prices of imported goods that companies rely on for their operations
  • Increased prices for consumers, possibly resulting in reduced demand
  • Supply-chain disruptions, causing delays and production interruptions, and forcing businesses to seek alternative suppliers or relocate production
  • Job losses
  • Stymied growth as companies are forced to pull back on investments.

The risk for business owners is multifaceted because of the project budgets and timelines that were established. They're all intertwined. During the post-COVID years the supply chains had a similar impact as the tariffs. In our oversight of multiple commercial and residential projects, there were significant delays due to material availability.

At the start of a project, it's important to assess how tariffs could impact the projections. Projections are aligned with strict timelines, and financial forecasts can be significantly impacted by unforeseen disruptions or cost increases resulting from delays. We have seen steady improvements until now. The risk is definitely heightened due to the tariffs. Representations to lenders and buyers are tied to maintaining certain budgets and within acceptable variances to those budgets. Tariffs provide a level of uncertainty on cost increases and providers are non-committal in maintaining pricing for an extended time period.

So how do you mitigate the risk? If you're going to take on the risk with some acceptable contingency to absorb the tariff impacts, you first have to determine whether you have enough financial contingencies or alternative options. But uncertainties can linger.

In contract language, for example, you can make modifications regarding the sources of materials to mitigate potential delays and uncertainties of additional costs, but there still may be an indefinite delay and an uncertain total of additional costs.

Every project will have a different risk profile. In construction, there are only so many options for materials. Commercial construction and residential construction have established supply chains. Still, we're constantly vetting those options early on in the project and looking at different impacts. In many industries, you can't change where you get materials that quickly. If you do try to find a new pathway, then you have to get regulatory approvals for anything that has to be investigated further, as to whether it's acceptable as a replacement product.

We are experiencing the effects of the tariffs' impact on source materials. For example, on our solar projects some of the components within the panels are sourced from China but may be obtained from other providers. We are seeing some homeowners, business owners, and contractors beginning to slow-walk projects. Until they understand what is available, they worry about a delay in commitments and delivery of finished products, material availability and cost.

There's little anyone can do about the current tariff uncertainties, but businesses can take actions now that will put them on more solid footing the next time a disruption happens.

The importance of diversification to mitigate risk in turbulent times

Diversifying revenue streams is crucial for protecting a business from the cyclical nature of any single industry. By having multiple sources of income, companies can achieve greater stability and resilience. For example, our diversification into real estate complemented our engineering business, providing a buffer during downturns in the oil and gas industry. While not every real estate project meets projected financial returns,

the overall strategy of diversification mitigated risk and contributed to our long-term stability.

Diversification allows companies to spread their risks and capitalize on opportunities in different markets. It can also provide a financial cushion during industry-specific downturns, ensuring that the business remains robust and capable of weathering economic fluctuations. Additionally, diversification can open up new growth opportunities, enabling the company to expand its market presence and increase

its competitive advantage. By continually seeking new avenues for growth and revenue, businesses can enhance their resilience and secure their future.

Building strong, long-term relationships that will withstand challenges

Our industry has the tendency to focus on strong metrics. Metrics are crucial for measuring performance, setting targets, and guiding strategic decisions but there are other variables.

An overemphasis on numerical targets can lead to the neglect of the human aspects of business, such as customer loyalty and employee morale. For example, during the oil and gas boom, our intense focus on numerical growth led us to overlook the importance of maintaining strong relationships with our core clients. The commoditization of services, without recognizing the importance of relationships, ultimately reduces value.

As a result, when the industry slowed down, we found ourselves scrambling to rebuild these connections, which had weakened due to our tunnel vision on metrics.

A balanced approach that values relationships alongside metrics can lead to more sustainable business outcomes. Building and nurturing strong relationships with customers and employees can enhance loyalty and resilience, providing a competitive edge even in challenging times. For instance, maintaining close communication with clients, understanding their evolving needs, and offering personalized solutions can deepen trust and foster long-term partnerships. Similarly, prioritizing employee well-being and creating a supportive work environment can boost morale and productivity, ultimately driving better performance.

With tariffs or any other change in the business environment, there are opportunities along with risks and road bumps. We learn new ways to navigate while continuing to move forward. As we continue to grow and evolve, let these lessons be our guiding light.

About Bony Dawood

Bony Dawood is the author of Invaluably Different: Forging Lasting Business Success Through A People-First Culture. He is the founder of Dawood Engineering, a civil engineering company based in Harrisburg, Pa., that he started in 1992. His affiliated real estate development firm is Good Hope Ventures. A registered professional engineer in seven states, Dawood built an award-winning, multi-national enterprise that plans, designs, consults, and constructs sustainable infrastructure throughout the U.S. He also creates digital twin and geospatial technology solutions in Europe, Asia, and the Middle East. Dawood has served as a motivational speaker and board volunteer for numerous organizations.