The Ins and Outs of Risk Taking

The Ins and Outs of Risk Taking

“Only those who risk going too far can possibly find out how far they can go.”
    T.S. Eliot

Entrepreneurs are known for being risk takers. It takes guts to break free from the notion of trading your hours for money and making someone else rich in the process. Starting a business doesn’t guarantee you a set amount of money for your time, or any money for that matter. But those with the entrepreneurial spirit are willing to take a chance in order to get what they want out of life.

But even among those who have taken the plunge, there are varying degrees of tolerance for risk. Some are happy to fly by the seat of their pants. Others are extremely conservative. Both of these extremes can get us in trouble.

Those who blindly take risks are much like compulsive gamblers who spend all their time and money in a casino. They might strike it lucky on occasion, but more often than not, they lose big. And what they gain when they get lucky isn’t enough to offset their massive losses.

Ultra-conservative types tend to fare even worse. They shy away from anything that entails the slightest bit of risk, hoping to hold onto what they have. While they rarely experience any losses, they have no chance of making significant gains.

Fortunately, most of us fall somewhere between these two extremes. Smart businesspeople know how to analyze risks and steer clear of those that are unlikely to work out in their favor, yet they realize that some risk is essential if they want to get ahead.

Still, a great many business owners are on the more conservative end of the spectrum. They risk enough to get started, but once their businesses are off the ground, they fear that taking further risks will put what they’ve worked so hard to achieve in jeopardy. So they keep doing what has worked so far, and instead of growing their businesses, they just stay afloat.

All Risks Are Not Created Equal

Those with an aversion to risk are, for the most part, pessimists. They believe that if they make a gamble, it will always turn out badly. But that’s not the way it works.

There are some risks that do have a high probability of not paying off. Here’s an extreme example: The plumbing in your house freezes. You can solve the problem by starting a fire beneath the pipes. But if you do that, there’s a good chance that your house would catch fire. Common sense dictates that the risk is not worth the reward.

But the successful business owner does not take risks like that. He carefully considers the risk versus the potential benefit. He weighs the probability of things turning out favorably versus disaster. He makes an educated guess at how it will work out, evaluates the consequences he will face if it doesn’t, and he bases his decision on that. In other words, he looks before he leaps.

One of the keys to determining which risks to take is knowing what you can realistically afford to lose. This is something that those with an intense fear of risk have trouble with. They either believe that they cannot afford to lose anything, or they convince themselves that they stand to lose a lot more than they really do. The intelligent risk taker, on the other hand, takes the time to assess how much time, money and energy he can reasonably part with. If the amount risked is less than that, and the reward is worthwhile, he moves forward.

A risk wouldn’t be a risk without the chance of failure. But if there’s also a reasonable chance of success, it is worth considering.

Overcoming Your Fear of Risk

“Only those who dare to fail greatly can ever achieve greatly.”
Robert F. Kennedy

Shying away from risk is a hard habit to break. But in business, it is too dangerous a habit to ignore. With the ever-changing economy, failure to grow is as good as plain old failure. And where there is no risk, there will be no growth.

If you’re suffering from a fear of risk, it may help to realize that everyone takes some sort of risk every day. Every time we get in a car and drive (or even ride with someone else), we take a chance on being in an accident. Even walking out the front door subjects us to some risks.

Most people just take these risks in stride, knowing that the chance of something bad happening are low. We know that there are dangers, but we don’t let that stop us from doing our everyday activities. If you can deal with these types of risks, you can work your way up to bigger ones.

If your business is your livelihood, it’s understandable that you would want to protect it. But avoiding risk altogether is not the answer. Building up a tolerance for risk, and learning to trust yourself to make intelligent choices, is. By doing so, you give yourself the opportunity to thrive.

“Do you want to be safe and good, or do you want to take a chance and be great?”
Jimmy Johnson, Sport Coach

Starting small is a good way to chip away at your fears. Maybe you could take a small risk that doesn’t put money you already have at stake. For instance, you could take some time off from activities that directly generate profit to make some changes to your website in an effort to increase your visitors rate. These changes could result in higher, lower or unchanged profits. But as long as you monitor your results closely and reverse the changes if profits decrease significantly, there’s no way you can lose much.

Keep taking these small risks until you’ve achieved some success. Then move on to progressively larger ones. This will boost your confidence in your decisions and show you that taking risks can work out to your advantage.

Putting the things we’ve worked hard for on the line is a scary proposition. But if you want to keep building on what you’ve got, a certain amount of risk is necessary. Not every venture will work out in your favor. But if you make educated decisions, your successes will outweigh your failures.

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