by Jason Richmond, CEO and Chief Culture Officer at Ideal Outcomes, Inc.
Think back to the last time you ventured onto a roller coaster. Unless you’re a self-proclaimed adrenaline junkie, you likely felt excitement mixed with a healthy dash of trepidation. The ride takes many twists and turns, and some slopes are scary. You’re strapped to the seat, sometimes experiencing anxious feelings and scared thoughts. But afterward, although a little breathless, you’re left with an undeniable thrill and sense of exhilaration.
From an emotional standpoint, the experience is very much like embarking on a new business venture.
The Ups and Downs of Risk-Taking in Business
Until recently, many business leaders thought of risk as something to be avoided at all costs. But in our modern digital economy, leaders who shy away from trying something new face sacrificing their market share to more emboldened competitors.
Risk-taking means taking strides toward growth, profitability, and continued market relevance. It signals to your customers and the broader market that you have confidence in your business and are dedicated to the progress and longevity of your brand.
The caveat here is that there’s a fine line between calculated risk-taking and risky behavior. Taking risks is a necessary tool for business success, but risky behavior can set you on a downward spiral toward failure.
The Psychology of Risk: Overcoming the Fear Factor
Let’s take a moment to contemplate the psychology of risk. When deviating from the status quo, many business leaders make the mistake of playing on the safe side and pursuing “controlled outcomes.” Too often, these efforts result in watered-down projects that take too long to execute or overshoot their budgets.
The exponential era of change doesn’t come with a textbook that guarantees results. You can’t predict the outcomes without taking the risk. Those who embrace the risk set their sights further out, push hard toward it daily, and generally achieve more than they would have if they’d tried to de-risk the project upfront.
To quote the words of Susan Wojcicki, CEO of YouTube: “Life doesn’t always present you with the perfect opportunity at the perfect time. Opportunities come when you least expect them or when you’re not ready for them. Rarely are opportunities presented to you in the perfect way, in a nice little box with a yellow bow on top. … Opportunities, the good ones, they’re messy and confusing and hard to recognize. They’re risky. They challenge you.”
Risk Due Diligence: How to Evaluate Potential Consequences
Before launching into a new venture, it’s vital to understand the types of risks you’re taking and how they could affect your chances of success. This is called taking calculated risks. Here are some of the most common types of risk you can expect to face:
Market risk involves the potential for loss due to fluctuations in the market resulting from changes or disruptions beyond your control. Retaining the services of an accredited market analyst specializing in your industry is a good idea to ensure you’re abreast of trends in your sector and have considered the potential opportunities, challenges, and customer preferences. The result should help you better understand the available market, your target audience, and how well your product or service aligns with their needs.
Competitive risk relates to one of your competitors eroding your revenue or margins by introducing a product with superior specifications, lowering their prices, or launching a more dynamic marketing strategy. Minimize competitive risk by conducting a thorough SWOT analysis, including strategies to counter competitive activity.
If you’re launching a product or service targeting a new customer segment, you’ll need to work harder to establish credibility in the minds of your customers. Developing customer curiosity can pique interest in your upcoming release. For example, instead of simply announcing a new product, a company may publish a picture of the product’s logo or silhouette on its social media platform. This can cause customers to become curious and start social media conversations. Another strategy for building credibility is pairing your new product with another well-known product when presenting it to an audience for the first time.
The road to commercial success is, unfortunately, littered with technology failures. Issues such as network downtime or the loss or compromise of sensitive customer data derail even the most promising business ventures. To minimize technological risk, perform regular maintenance and security checks on your environment and invest in a reliable backup and recovery solution.
Financial risk refers to cash flow problems preventing you from servicing your debt obligations. Careful selection of investors and setting reasonable rates of return can help mitigate this risk, as can working with a financial accountant who can help you proactively forecast, adjust, and manage your financial risk.
Cultivating a Calculated Risk-Taking Culture
As we’ve explored, you can’t take risks without direction or careful planning. This includes people-related issues. In setting down a new (potentially risky) path, you must ensure that your teams are also buckled in for the journey.
Like your company’s corporate culture, a risk-taking culture needs to be cultivated and sustained. Risks have to be approached transparently. Some best practices for making sure all your employees are on the same page as you:
- Articulate precisely what you’re trying to achieve and how you plan to do it. As part of these conversations, say, “Here’s why we’re going to do this in a riskier way, and here’s the benefit if we succeed.”
- Set and communicate milestones and establish mutually agreed checkpoints and boundaries throughout the project. Everyone involved should know, “If X happens, we’ll pause to reassess our position and course correct, but if Y happens, we’ll fail fast and pull the plug.”
- Have your team’s back. If something goes wrong or the endeavor isn’t the success you hoped for, be prepared to take the ultimate blame and protect your team.
- Evaluate every failure honestly with your team to see if it was avoidable. Nobody likes to fail, but don’t be afraid to admit failures and dissect them.
- Take inspiration from the wise words of optimistic risk-taker Jeff Bezos, founder and CEO of Amazon, “I knew that if I failed, I wouldn’t regret that, but I knew the one thing I might regret is not trying.”
Risk is a Roller Coaster Ride Worth Taking
Like roller coasters, taking risks in business can seem overwhelming and scary at first. But once you set out on the ride, there’s an exhilaration that comes from facing and conquering your fears.
With careful thought and analysis, you can learn to identify risks worth taking and how to navigate them with courage. By understanding when to buckle up for a ride and when to tap the brakes, you can soar to new heights.
One way to make decisions, including those regarding risk taking, is to go back to your organization’s values. Download our free tool, Develop a Values-Driven Culture to help you ensure your company’s values are aligned and clear.