Risk is often held up as a supreme virtue of a 21st century organization. While attending an entrepreneur conference you might read of a past company that took a big risk and it paid off. You might also hear examples of companies that acted recklessly and “crashed and burned”. Is there a difference between taking calculated risks and being reckless? Are there life principles that also apply to business? In this article we will compare and contrast the two.
Everything in life has risks
– Marriage leads to the possibility of divorce
– Riding in an automobile (especially a taxi) increases your risk of injury or death
– Just walking around town increases your risk of “being in the wrong place at the wrong time” and getting mugged
Every business has risks
– The market might crash and you will not be able to get funding
– Competitors might take your market share
– An employee might act in an inappropriate way leading to a law suite
– Your might lose a big contract and have to layoff employees
Living your life in fear vs being responsible
Anything can be taken to an extreme. You can be so risk averse that you don’t do anything at all. You can also be so risky that you cause serious damage to your reputation, your financial situation, and even your life. It is one thing to have 6–12 months of food storage, some financial reserves, and a generator. It is another thing to live in the mountains, have a bomb shelter filled with weapons and ammunition, and awaiting signs of the zombie apocalypse.
Working for a startup means you have some tolerance to risk
A startup will generally have more risks associated with it than a well established company. With risk comes reward. You already know this. You know that you have a greater chance of it making it big by doing a startup, over just “working for the man”. You also know that you have a greater risk of pouring your heart, soul, and means into something that might fail. You are already on the side of taking risks over just playing it safe.
Because you have a higher tolerance to risk than others, you have a higher chance of being reckless. Being reckless has caused heartache and pain for many people and families. How many people have let it all ride on red? How many people have invested thousands in a “sure-thing” stock only to see it crumble?
All engine, no breaks
As a startup, you want to get into the big leagues as soon as possible. Sadly, I have heard the phrase “In a year, we are either going to make it big, or we will be out of business” far too often. This causes startups to pour all their money into nitrous oxide and jet fuel without investing in brakes. That would be like saying, “I have to be in first place by the first turn, or I will lose.” Most likely you are just going to hit the wall. Splat!
There is a healthy balance that you can find for your company. Different industries will require different engine to break ratios. One thing to ask yourself is how tolerant are my customers to risk? If I get something wrong how detrimental would it be? In some cases, you just can’t get things wrong.
Everything in life is on a spectrum with extremes. Avoid the extremes and find the right balance. There are warning signs to look for if your company is too far on one side or the other. I will be discussing those in future posts, so stay tuned! Also, have you worked for a company that didn’t find the right balance? Would love to hear your comments!