Racing through uncertainty: lessons from Formula One

Almost a year ago, I posted an article on business risk taking and the parallels with Formula One. A lot can happen in 12 months.

Not only have the UK voting public decided to leave the EU, but Donald Trump is the President of the United States of America and after seven seasons Manor Racing will leave F1 after a buyer could not be found by the administrators. Oh, and after 40 years at the helm, Bernie Ecclestone is no longer chief executive of Formula One, following its acquisition by Liberty Media Group.

So what have we learnt from all this?

Firstly, never underestimate the power of the people in a democratic process. A vote to leave the EU was considered very unlikely and when Donald Trump stood for nomination few predicted the final outcome. In Scotland, we now face the prospect of a second independence referendum, affectionately known as IndyRef 2.

Business is equally susceptible to unexpected changes. Whether it be the power of the customer moving business away to a competitor, a major customer or supplier failure, or changes to the political and economic landscape affecting business plans a business needs to plan for resilience in such circumstances.

Secondly, the line between success and failure can be very thin. Manor Racing point to Sauber’s Felipe Nasr clinching ninth place in Brazil as the cause of their failure to maintain 10th place, losing £12m in prize money and being forced into insolvency.

In reality, a failure by Manor to score more than 1 point over the entire 21 races in 2016 was perhaps more relevant. Looking back to my posting of March 2016, did Manor take enough risks to survive? Perhaps they gambled on technical improvements that didn’t pay off. Or were Manor Racing a victim of underfunding?

The insolvency of Manor Racing is disappointing and highlights the fragility of motor racing businesses if you are not performing at the top end, but is that any different for any business, in any sector? 

Business investment is fraught with risk, but as the old quote goes, “Fortune favours the bold”. Balancing risk with reward is key and requires very careful planning and research to assess what could go wrong and how to address it if it does. 

As we have seen in the last 12 months, nothing is certain. Perhaps, following IndyRef2, we will see a 'Scottish Grand Prix' around the streets of Edinburgh, Glasgow or Aberdeen!

Kevin Lamb is a chartered accountant, Formula One fan and restructuring advisory director with RSM, based in Scotland.

Any views expressed in this article are the views of the author and do not necessarily represent the views, policies or regulatory approach of ICAS.

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