When you embark on a new entrepreneurial venture, risk taking suddenly becomes the centre point of everything you do. You’ll read article after article telling you that to succeed and grow, you must embrace risk. But how can you tell when a risk is really worth taking?
When discussing entrepreneurs taking risks, stories such as that of Fred Smith, the CEO of FedEx, are likely to be presented to you as fantastic examples of how big risks can pay off.
The story goes like this. In the early years of the company, FedEx found itself in a precarious situation. With only $5,000 available, they were unable to afford the fuel needed to make deliveries the following Monday.
So, Fred Smith took himself and the remaining $5,000 to Vegas. By the end of the weekend he had $32,000 and the company was miraculously saved.
So, what can you learn from this story?
Should you grab whatever funds are available to you, head to the nearest casino, and begin planning which supercar to buy when you make it big?
No. In fact, the risk taken by Mr Smith is a better example of what not to do.
A blind risk, taken in a moment of desperation, boils down only to luck. These are the sort of risks you should try and avoid in business, as they bear little relation to what your business is about or what it could become.
The resulting success of FedEx boils down to a solid business idea with a clear requirement.
Had Fred Smith’s big idea for a company been selling ice to Eskimos, the story would represent no more of an inspirational success story than that of any other happy punter staggering out of Vegas with a wad of cash in their back pocket.
With the odds stacked against him and no contingency plan, Smith’s gamble was not measured and could just have easily left him with nothing.
The types of risk you take to grow your business should not be reckless or, where possible, in desperation.
Here are our top 3 tips to help you take smarter risks and give your business the best chance of success.
Don’t be scared of risk taking
For many people, the word risk will have connotations of danger, recklessness and rash behaviour. The phrase make or break may spring to mind.
But in reality, we all take risks everyday on a variety of levels. Most of the choices we make in life will have some level of risk attached to them.
High risk decisions such as buying a house or starting a new job will have implications that we’re likely to consider carefully before moving forward.
But even the smallest decisions have risks. When we leave the house without a coat, we are risking being cold or getting wet should it rain. Staying up late to watch a new television programme means we run the risk of being tired at work the next day.
So why don’t these risks seem scary? For one, they aren’t make or break. They might cause an inconvenience or set back if they don’t pay off but will not have disastrous consequences.
They are also informed risks. Researching them can be as simple as checking the weather forecast or glancing at your calendar. In less than a minute you have researched, weighed up the risk and made a decision.
Apply these principles to your business risks. Start small with some risks that won’t ruin your business if they don’t pay off. Why not throw a few hundred pounds into a new marketing channel you haven’t tried yet or attend a training course that you’ve been thinking about?
Weigh up the risk
When it does come to approaching bigger risks, focus on making a smart decision. Do the research and weigh your decision carefully.
List out the benefits or negatives that could result from the risk and ask yourself this question: “Am I willing to risk x to achieve y?”
It may also be useful to brainstorm the risk with other people. Conducting a risk assessment like this may highlight factors that you had previously not noticed.
The more experience you have the easier this will become.
Contrary to popular belief, the average age of an entrepreneur who has started a business and hired at least one person is 42. Studies have also shown that company founders were 125% more successful when they had previous job experience in a similar industry.
These statistics show that the experience and expertise you have are likely to have as much or more impact on your success than simply your ability to take risks, as they help you to make smarter and more informed decisions.
Keep an eye on the bigger picture
As an entrepreneur, particularly when you first start out, it can seem as though you’re always living in the moment. With deadlines to make and bills to pay, this isn’t technically a bad thing, but in order to advance your business it’s important to keep the bigger picture in the back of your mind.
Not only will knowing what you are aiming for make it much easier to get there, but it will also help you to maintain balance in your risk taking.
One big problem can be taking on too many risks at once. When you know your goal, you can focus only on the risks that will help you get there, making it easier to say no to certain projects or offers.
Having an eye on the future can also make it easier to create contingency plans. Ask yourself: “If this doesn’t pay off, what can I do to get back on track?” This can abate some of your fears about the risks you take and stop setbacks from becoming major road blocks.
That being said, when looking at your roadmap and goals over a long period of time you must be flexible. Some opportunities may present themselves that are worth putting ahead of your planned aims.
Taking advice and reading about the successes of other entrepreneurs can be a great way to motivate yourself and help you find your way, but it’s important to remember that every business is different.
Knowing when to take risks can be a great attribute for an entrepreneur, but so can understanding when to play it safe.
What are some of the biggest risks you’ve taken in your career that have paid off? We’d love to hear about your experiences in the comments below!