Taking a risk can be incredibly scary. Not just in business but in everyday life. Should you buy that lotto ticket for $500? Should you leave your comfortable job and a start a new role at a new company? Both could turn out to be amazing decisions but both could also impact you in a negative way.
Risks come with owning a business. You know that you need to take risks in order to achieve outcomes but you also don’t want to lose everything you have worked so hard for. Dynamic Business asked experts how to take risks in an effective and calculated way.
Alex Alexandrou, GM, Reckon:
Risk taking is never easy, but it’s a given if fast growth is the goal. Read the back stories behind the world’s most successful entrepreneurs, and you’ll find an adventurous streak in almost all of them — particularly at the beginning of their careers.
Conviction in your idea is the first ingredient to successful risk taking, but it’s important to be grounded in proper insight. Passion projects can easily become more emotional than rational, so thoroughly tracking the amount of investment and return is important in knowing when to let go.
It’s also worth assessing the level of failure that you are capable of withstanding. Those with more personal responsibility will of course have higher stakes, but failure can be an important learning process. Look at how many failures the likes of Richard Branson had along the way.
Where total failure of a business isn’t feasible, think about ways to innovate without damaging your entire offering. Creating an incubator within your business, perhaps under a different brand, means the risk is limited to one area. Cloud technology means there’s no need for heavy investment in infrastructure and online tools up front, making experimentation easier than ever.
Sarah Moran, CEO & Co-founder, Girl Geek Academy:
Success is achieved by taking risks, and finding something that inspires and motivates you to take risks is extremely powerful. We also shouldn’t underestimate the power of having a strong support network. Currently, gender bias and lack of diversity plague many industries in Australia. It’s important to take the initiative and help others when we can and also make the first leap into something unfamiliar. Effective risk takers are people motivated by their goals and willing to work hard to achieve them. We need to recognise the consequences of your actions- how will it impact others? What do I have to lose? Not all the risks you will take will be big, and that’s ok. What matters is that you are putting yourself in unfamiliar situations and trying new things out.
Eugene Belilovsky, Vice President Advisory Services, Avanade:
Risk takers have always been a polarising force within organisations. They stand out because people tend to crave certainty and risk takers inevitably make people feel uncomfortable.
Effective risk takers share a few common attributes. Most importantly, they are able to see and describe a future that doesn’t exist today. Before jumping into solutions, they take the time and space needed to explore both problems and opportunities impacting their organisation and wider industry.
They bring conviction and genuine belief that the path forward they are proposing is the right one. While risk takers are able to cut through the noise to ensure the team moves forward, they are also resilient enough to handle the inevitable bumps on the road.
For effective risk taking within organisations, we must be authentic about the role of failure in growth. We have to anticipate some level of failure, which naturally increases with higher levels of ambition. The trick is to help teams embrace acceptance of failure without allowing complacency or lack of results orientation to creep in.
Aron D’Souza, Founder & MD, Sargon:
Effective risk-takers are those who have the capacity to take risks on a time-adjusted basis, unscarred by adverse risk-taking experiences, and asset-light enough to behave in an agile manner. Stereotypically, young people fit this profile.
Younger people have the luxury of time and the energy to manage and leverage the second-order effects of their choices. They can manage adverse consequences and seize upon new opportunities arising from their actions.
Additionally, without the burden of historic adverse episodes wearing them down, young entrepreneurs do not feel let down by negative past experiences. They can approach each opportunity with fresh eyes.
Finally, young entrepreneurs are asset-light, without liabilities such as mortgages, bills, and child-rearing costs.
However, I have found the other major class of successful first-time entrepreneurs have a bit more grey. There is an opportunity for older entrepreneurs to leverage the freedom and flexibility that come after mortgages are repaid and their children become self-sufficient.
Older entrepreneurs can also be effective risk-takers if they treat their adverse experiences as important lessons to inform, rather than block, future endeavors.
So being an effective risk taker is less about age, and more about mindset coupled with life stage.
Andrew Raso, CEO, Online Marketing Gurus:
We need risk takers in business. Successful risk takers will put in the hard yards and give things a go. They won’t be afraid to fail. They will make sacrifices in the short term to meet a goal in the long term. The risks may not always pay off, but many will. Without taking any risks a business is sure to fail.
Of course it’s still good practice to exercise cautious. My business partner Mez Homayunfard and I are polar opposites. I’m the natural risk taker and Mez is more cautious. We end up meeting in the middle and take calculated risks. For example, within the last four months we have reinvested a significant chunk of our profits into our sales and marketing departments to help support our growth goals. While this is a risk, it’s a strategic risk that we’re confident will pay off.
Reuven Barukh, CEO, Live group:
Everything in business and in life has an element of risk. The greater the risk, the greater the reward.
The key to being a successful risk taker in business is to qualify the risks to ensure they are calculated. Your goal is to understand the upside, but also to understand the downside and whether it is sustainable.
The best way to assess risk is to drill down into the data and model different potential scenarios. Almost everything in life can be modelled. In fact, personally modelling is a bit of an obsession! I even modelled the costs of my kids’ schooling down to every small detail, factoring in everything from rising food costs, CPI and even pocket money. Do your research, compare different scenarios and forecast the data. Excel is your friend!
Once you know how to assess risks in this way you’ll know when to say no to opportunities and when to run with them.
Peter Collins, Executive Director of Innovation, Arq Group:
Organisations of any size need risk-takers to remain innovative and competitive.
Established companies with more employees and shareholders typically need at least 70 per cent certainty around the outcome of any decision, before they are willing to make a move. But if we want to be innovative, we really need to start operating more within the 20 to 40 per cent range. This is why when we think of innovative companies, we tend to think of startups – they have more freedom to play within this field of uncertainty.
However, the real difference between an effective risk-taker and a hasty decision-maker lies in the driving force behind the risks they take. The former aligns with the bigger picture of their organisations’ mission and purpose, while the latter focuses heavily on financial profit.
An effective risk-taker puts stakes on innovations that stand to further their company’s ability to fulfil its broader vision. There are countless risks you couldtake, but they’re not necessarily all right for yourcompany. An effective risk-taker knows the difference.
Nicolette Maury, VP and Managing Director, Intuit Australia:
An effective risk-taker has the ability to assess possible outcomes, understanding how the desired result will ladder back to the purpose, goals and values of the organisation. They’ll also understand the risks of any particular action, thinking about the worst that can happen to ensure mitigation opportunities have been considered.
Data-driven decisions are incredibly valuable and insights should be gleaned from all levels of the business. Talk to those dealing directly with customers because they understand client needs better than your executive team. Apply these insights to your decision-making processes and use them to inform how you’ll measure success before you take action.
Ben Thompson, co-founder and CEO, Employment Hero:
Effective risk takers possess a number of key qualities:
- They are driven by a sense of purpose: In Employment Hero’s case, this is what we call our Big Hairy Audacious Goal (BHAG), which is to make 1,000,000 employees at least $5000 better off per year by 31 December 2021. Achieving this goal is an obsession that forces us to take risks as long as we believe they can help us achieve our BHAG.
- They know that the degree of risk can be managed with great execution: Employment Hero recruits great people who we know can execute on our goals. We use 90 day sprints to focus the entire company on the #1 thing that must be achieved each quarter and we review our progress every day.
- They are voracious learners who consume information and inspiration from the broadest possible range of sources: This allows the team to see connections and opportunities that are probably outside our competitor’s peripheral vision and might look more risky than they really are.
- They are capable of distilling issues down to ‘first principles’ in order to build superior solutions from the constituent elements involved in any particular scenario.
- They believe the world is highly malleable and exists to be remodelled and improved: Steve Jobs nailed it when he said, ‘Everything around you that you call life was made up by people that were no smarter than you and you can change it, you can influence it, you can build your own things that other people can use.’
- They are willing to back themselves despite what people say: They have a deep belief in their product vision because they simply know it is better than the status quo. As Henry Ford said, ‘If I had asked people what they wanted they would have asked for a faster horse.’
Noah Abelson-Gertler, CEO, ShareRoot:
This is a difficult question. There are CEOs who think that being risk-averse is a better play than being risky, yet it’s the riskier CEOs that grab the headlines and seem to have the largest successes.
The reality is that each business and situation calls for a different level of risk, and the other reality is that the majority of successful CEOs and business leaders are not massive risk-takers. All of this being said, if I had to boil it down to one statement it is this: inherent in being an entrepreneur or business leader is risk, the key is to take risk in stride and see where your personal hesitancies and concerns are guiding you and making you question a bold move vs. analyse the situation for what it is without your projections playing a role.
Clarity in times of big decisions is key, clear out anything clouding your decision-making process.