7 Step Checklist for taking a Business Risk
fm Forbes.com Zine 14 Aug 15 enhanced by Peter/CXO Wiz4biz
Power of Risk: Becoming wildly successful is the result of a combination of factors — pure luck, hard work, & taking risks. Pure luck isn’t something you can will into being. Working hard takes sheer grit and a long time. What you’re left with is the Power of Risk. Every entrepreneur or aspiring entrepreneur faces risk. You can take the business risk and succeed. On the other hand you can avoid the risk, but never have the possibility of wild success. Whatever risk you’re considering, here are eight questions that I suggest asking yourself.
1. Have I wanted to do this for a very long time? If you answer “yes,” this is your first “green light”. Take the risk. The very fact that your desire has persisted in your mind is an indication that you should go forward.
2. Am I okay with “the worst thing that could happen?” A helpful way to consider a risk is in light of “What’s the worst thing that could happen.” You’re faced with a decision to (ie, take out a Loan, quit your Job, Sell your company, Launch the new product, or Acquire another company), and your mind is full of the things that could go wrong. You should consider the possibility of failure. Many entrepreneurs were spectacular failures, before they were insanely successful: 1) Richard Branson crashed two companies before Virgin took off. 2) Steve Jobs had a rocky road with Apple (when he was fired), before taking control and driving it to innovation & profitability. 3) Peter Thiel, PayPal co-founder & Facebook investor, once lost $7 billion on a company.
Fear of Failure. According to the research of psychologist Daniel Kahneman, we tend to over-estimate the possibility of bad things happening. This habit of thinking can limit our ability to make rational risk choices. Is failure really that bad? Or even that likely? Failure is not that bad, if you can learn from it and get it over with. Besides, if you do happen to fail, you’re that much more likely to succeed on your next attempt.
3. Will I “regret” not taking this risk someday? Fast forward 10, 20, or 40 years to the end of your life. What will you regret? Will you regret not having taken the risk? In my mind, this is one of the most helpful ways to view risk. Don’t simply ask yourself what could go wrong. Instead, consider the risk of doing nothing. The worst thing that could happen might be not taking the risk. When you refuse to take a risk, you sabotage your potential success. Your whole life is a series of risks. Sometimes you get to choose which risks to take. Often, the refusal to take a business risk is itself the riskier alternative.
4. Does the potential “success” of taking the risk outweigh not taking the risk? Make sure that you’re willing to live with your decision. Only take a risk, if you know that a successful outcome is going to be better than your current situation. If you’re not sure whether or not it will be, then consider it a risky experiment. As Ralph Waldo Emerson wrote, “Don’t be too timid or squeamish about your actions. All life is an experiment. The more experiments you make the better results you will have.”
5. Are my Stake-Holders willing to take the risk? A business risk requires the buy-in of co-founders, investors, & key decision-makers (as appropriate). In most cases, the founder will be the one pushing to take the risk, but others need to agree with it – to determine it’s a risk worth taking.
6. Are my Significant Others willing to take the risk? It’s one thing to take personal risk. It’s quite another matter to risk the well-being of others. Even business risks can have personal repercussions. As you contemplate your risk, talk it over with those who might be impacted by the failure or success. If they’re willing to take the risk with you, you’ve gained cheerleaders. If they’re un-willing to take the risk, you should reconsider and gather more info.
7. Can I identify when the risk is clearly headed for failure? Some wild-eyed entrepreneurs refuse to consider failure as an option. They say “no” to any Plan Bs, alternatives, parachutes, or escape plans. While gritty determination is to be applauded, it’s foolish not to count the cost. Failure is always an option. You need a Backup Plan, in case everything goes up in flames.
EXAMPLES: 1) Amazon’s Jeff Bezos has a few failures on his resume. Reflecting on these failed attempts, he said, “If you get to a point where you look at it and you say ‘we are continuing to invest a lot of money & time in this, and it’s not working, we’ve got to end it”. On the day you decide to give up on it, what happens? Your operating margins go up because you stopped investing in something that wasn’t working. Is that really such a bad day?”
2) Funny guy Scott Adams, creator of Dilbert, says “I go into most risky projects (and those are the type I prefer) with two contradictory thoughts: 1) this sort of thing is unlikely to succeed & 2) this will totally succeed. I hold both thoughts until the last dying gasp of a project. I can’t think of a time I thought I would fail, without simultaneously thinking I would pull a rabbit out of the hat at any minute.”
Comments: Can you add some good insights from your experience with taking Risks?