Taking risks is essential in business, no matter your background or industry. Often, being afraid to take risks can be just as damaging to your business as making decisions recklessly.
PayPal founder, Peter Thiel, once said, “In a world that’s changing so quickly, the biggest risk you can take is not taking any risk”. This rings true, with a report by the Global Entrepreneurship Monitor (GEM) stating 70 per cent of entrepreneurs believe taking risks is crucial for business growth.
Statistics show that risk takers are more successful in life overall, as they are always looking for opportunities to capitalise on. However, there is a difference between taking calculated, well-thought-out risks, and blind leaps of faith.
Risk-taking in business is a behaviour, and successfully approaching risks requires careful planning and an underlying strategy.
Have a plan
It all starts with having a solid plan, as once you have a strategy in place, it becomes much easier to evaluate opportunities and decide if a risk is worth taking or should be avoided.
With your team, map out a few high-level goals you would like to achieve, and then work backwards to determine a roadmap for how to get there.
When putting your plan into action, identify and analyse the risks you face at every stage of the journey and consider the opportunities and worst-case scenario possibilities. This will allow you to truly understand the potential outcomes of any risky decisions you are planning to make.
Remember though, a plan is a roadmap, not a commitment set in stone, and it’s important to approach planning with a degree of flexibility. Plans rarely unfold exactly as envisioned, but defining your goals and the approach needed to achieve them is nonetheless essential – just be prepared to adjust and refine your strategy as you move forward, as its this flexibility that is key to successfully navigating the unexpected.
Move past the fear of failure
The fear of failure is a huge obstacle for many business owners, but it is important to recognise that at some point you will take a risk that will fail.
In a study from the Kauffman Foundation, 60 per cent of entrepreneurs cited fear of failure as a significant barrier to starting or scaling their businesses, but trial and error is an essential part of growing a business and truly succeeding.
By understanding and accepting the reality of failure in business, you will be better able to prepare for it. Sometimes you need to take a step backwards to make a leap forwards, but too many people assume that if something feels scary, it should be avoided at all costs. That is not an accurate way to measure risk.
Get comfortable with being uncomfortable. Ask yourself “what is the worst that could happen?” and “what is the best that could happen?”. Answering these questions will enable you to minimise potential loss as much as possible while taking calculated risks.
Assess risk vs reward
Of course, failure after failure isn’t going to get you where you want to be, so assessing risk vs reward is vital. For example, if a risk failure will mean your business enters liquidation, the risk is likely too great, but if it means a financially tight few months, it could be a risk worth taking.
In Victor Haghani’s latest book, The Missing Billionaires, he discusses the concept of personal risk aversion, and why its essential that you assess your required subsistence level or income and how long you can sustain this before your business starts to deliver returns on the time, resources and personal investments you have made. Your ‘risk aversion ratio’ measures your tolerance for the worst-case scenario, such as investing up to 60 per cent of your savings to cover income losses or business startup costs, all with the hope of significantly multiplying your wealth.
So, given this, the critical question becomes: is the potential upside worth the downside, and more importantly, would you still be financially stable if the worst-case scenario were to unfold? These considerations are not at all uncommon when starting a new business. It’s essential to understand your own risk tolerance, and use this knowledge to compare opportunities, prioritise the best value for your time, money and effort, and ultimately, set realistic expectations to achieve your goals.
Get comfortable saying ‘no’
As you calculate risks, be prepared to turn down some good opportunities. Learning to say no is one of the best skills you can adopt in business, but this is easier said than done if you are someone who thrives off new ideas.
Know that, realistically, you can’t pursue every new idea that comes your way. This is especially true when it comes to a risk or potential opportunity.
If you jump at every chance that comes across your desk, you won’t have time or space to take on the ones that have a high probability of succeeding.
Speak to trusted advisors
When weighing up risks, get feedback from experienced people around you who you know you can trust. Walk them through your thought process and ask them to help you identify risks you may have overlooked.
Gathering feedback from a variety of sources, including customers, employees, third-party analysts and even competitors, will allow you to more accurately gauge potential opportunities and threats. So, when you are too afraid to make a move, talk to someone about the potential benefits of moving forward.
Hearing some words of wisdom from someone else may help you find the courage to take the leap.
Final thoughts
In the world of entrepreneurship, where there is no risk there is no reward. Growth stems from risk, but it must be the right kind of risk.
The business owners who succeed the most are often those with a healthy balance of caution and proactiveness.
Therefore, rather than avoiding risk all together, make informed decisions that optimise the risk-reward equation. This way you can pave the way for sustainable growth and success.
Serge Santos is owner and CEO of Funding Alternative Group and Compressed Air Centre.
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