Management Article September 2007 – Bill and Joe: Two View of Risk Taking For Growth
Are you willing to take risks to grow your business?
If you want to leverage yourself in order to reach a higher income or grow your business, you’ll have to take risks. If you don’t want mediocrity, you are going to face risk every step of the way.
You are responsible for everything that happens (or doesn’t happen) to you in business. The risks you take determine the returns that come your way.
But there are two kinds of risk. One is foolish risk. It is reckless, without thought or care. The foolish risk taker throws caution away. This kind of risk can lead to disaster in a hurry. Some call it “bad luck”, but we don’t.
The other kind is calculated risk. It incorporates thought, inspection, planning. Calculated risk considers the numbers. A good risk taker considers all aspects before the event or move takes place so that he knows ahead what he could gain and holds the possibility of an early exit before he ever starts. He’s a good game player. Some call him “lucky”, but we don’t.
Our fictional Joe had gotten more and more into the habit of taking foolish risks in his business ventures. To him success is a gamble. “Dang,” he says, “I just can’t get lucky.” But he believes he’ll get lucky someday, “Maybe today.” The poor man has been blinded by earlier choices that led to the development of poor judgment. He has no real work ethic. He escapes whenever he can, especially when the going gets rough.
Bill, on the other hand, has developed good habits. He doesn’t believe in luck because he’s not a gambler. He plans everything. Once in awhile he enters into a risky situation and sees that it’s going bad; so he pulls out in time and loses nothing except perhaps a little pride. But even there, he reassures himself with the knowledge that he “won’t do that again”.
Bill learns from his mistakes.
Joe does not.
One is a foolish risk taker; the other is a calculated risk taker. There are risk takers of every degree from the absolutely foolish to the overly cautious.
Good risk taking involves doing your homework and using operating metrics to make sound decisions. You don’t want to guess or speculate on the actions you should take. Good risk takers are careful thinkers who plan ahead. But they don’t keep projects in the planning stages when it’s time for action. They get off the dock and go for the swim because they have weighed the potential gain against the risk. Planning is a mental way of calculating whether something is worthwhile or not. Good risk takers weigh the odds, mark the path and hold onto an escape route. In addition, because they have analyzed the situation, they seldom make the same mistake twice.
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