From hiring a team to creating a marketing strategy, every business venture involves some level of risk. As a business owner or entrepreneur, risk-taking is simply part of the role.
While it’s impossible to predict how a decision will pay off, there are steps you can take to mitigate cost and uncertainty. Below, we outline the steps and potential benefits of calculated risk-taking. For a condensed version of our take, jump to the infographic.
What is a Calculated Risk?
A calculated risk is a risk that’s been given thoughtful consideration by weighing all potential costs and benefits. Calculated risk-takers carefully take steps toward a goal. They don’t gamble on the future. Instead, they find ways to mitigate risk as much as possible.
With every business decision, you consider the outcome and advantages or disadvantages. This is even more important with business risk-taking when the stakes are much higher. The more you can lower the potential for loss or injury to your business, the better.
How to Take Calculated Risks
When faced with an opportunity, consider these steps to work toward your goal in a thoughtful way. Even if you think of yourself as risk-averse, the below tips will come in handy for non-risky business decisions.
1. Break down the decision – Assess the larger end goal by shrinking it into smaller, individual risks. It’s far less daunting and enables you to evaluate each risk at the micro level. Start by writing down each of the component parts that make up your decision. What will be the real effort required? Begin with the easiest of those parts first.
2. Ensure your bottom line is balanced – Can your bottom line take the hit if the opportunity you pursue happens to go south? As a business owner, shareholder or employee, check your numbers quarterly or after each accounting period to assess the effectiveness of your strategy and management.
3. Evaluate the opportunity – Take a step back to gather as much valuable information as you can. Create a road map or plan of action and list possible outcomes to weigh how the risk will play out. As Richard Branson was starting Virgin Atlantic, he negotiated in his contract with Boeing the option to return the 747 plane at the end of its first year if the venture didn’t work out as expected. His team spends time finding innovative ways to protect the venture from potential risks.
4. Be OK with saying no– Keep in mind that not every idea should be pursued. If your plate is always full, it’s more difficult to find the time to go after an unexpected or shocking opportunity. In 2008, when Facebook offered $500 million to take over the growing Twitter platform, it promptly turned the offer down. The Twitter founder and team believed in its original vision.
5. Be flexible – Learn to change course if something isn’t working, but keep a forward-thinking mindset. It’s best if you can anticipate an issue before it affects your business or bottom line. For example, you pursue a new venture that’s allotted a $50,000 budget, but find out two months into the four-month-long project the budget is getting cut by $10,000. Instead of getting frustrated, head back to the drawing board to come up with a creative solution.
6. Set checkpoints – While you may be months or even years from reaching your goal, check in on your progress. Regular checkpoints will help you stay on track.
Risk-taking can mean the difference between ordinary and extraordinary. Don’t let fear get in the way if you are passionate about the direction of your goal. Your business growth depends on your willingness to try something new, even if it ends in an epic fail.
1. Gain a competitive edge in the market – Demands are always changing, along with customer needs. If you’re willing to take a risk when competitors or other businesses aren’t, people will remember you for it.
2. Drive transformational change – Status quo isn’t an option in business anymore. What will push the needle when it comes to your services and products that no other business is doing?
3. Overcome fear of failure – When you’re willing to take risks, it empowers you to break through limits (whether self-imposed or external) that may be holding you back.
4. Learn to trust more – As you overcome a fear of failure, it will instill a willingness to trust the process. If you’re unsure how to do that, lean on your team or business partner for an extra boost of confidence.
Pursuing a risk takes time, effort and courage. Particularly, in business, when there is a lot riding on your decision. However, calculated risk-taking lends itself to true innovation and growth. Industry leaders got where they are because of strategic planning and a willingness to take chances.