Risk—Exchanging the Possibility of Loss for Potential Gain
If you plan to become a successful entrepreneur, then consider your comfort zone to be a thing of the past. Nothing forces you to forsake your comfort zone more than taking risks. Taking risks by default goes against human nature because we are creatures of habit and place a high value on what we perceive to be security and stability. In addition, humans prefer predictability and want to feel in control of their outcomes. Entrepreneurship is the antithesis of comfort. It is risky in the sense that there are no guaranteed steady paychecks nor benefits package and there is no one else to blame when things go wrong. Loss of capital and time, hiring the wrong staff, fluctuations in customer demand and revenue, and lots of other external factors in the marketplace are beyond the organization’s control.
There is a direct relationship between risks and rewards. In fact, there is a popular saying in the financial investment industry that “the greater the risk, the greater the reward.” This is mostly true; however, you can take risks only after you have made an informed decision that is based research and authentic data, a well-thought-out plan, and prior experience. In the words of Warren Buffet regarding experience, “Risk comes from not knowing what you’re doing.” In addition, after you have taken a risk, you also gain new knowledge, and then the risk from the lack of experience is no longer present. In other words, you have to do something long enough that the risk of failing from not knowing what you’re doing goes away.
Risk cannot be totally eliminated, but it can be minimized. Therefore, you might as well make risk-taking your friend. Once you overcome one risk, another one might emerge. On the other side of risk are great possibilities. You will stretch yourself beyond your current capacity, and what you once thought was beyond your reach will suddenly become attainable. As a result, you will become more confident in taking on your next challenge and move to the next level.
On your journey to becoming a successful entrepreneur, taking risks will become the norm over time. With each new risk taken, the trepidation will lessen.
In order to develop the right perception of risk, you must prepare yourself for it by accepting it as an inevitable part of doing business. Taking risks requires you to go against what’s normal or easy; therefore, sometimes you need to take a more challenging route that is more likely to produce the results you want. There is just something about taking huge leaps of faith that opens up great possibilities. On the other side of risk is either a big win or an even bigger lesson for you to learn in the event of failure. Either way, both work to your advantage. Think of the old adage, “you’ll never know unless you try.”
Disappointments, fears, pain, and failures can create mental barriers that dampen our will or desire to try again. They establish a false narrative in our minds that what you attempted was not worth it because the outcome was less than desirable and, in some cases, just downright painful. Perhaps it wasn’t your attempt that caused such a terrible result, but maybe it was your inexperience, the wrong timing, the wrong people were involved, or something else was the culprit. None of these mean that you did anything wrong or that you are doomed to get the same set of bad results if you try again under different circumstances.
Reflect back on a time in the past when you wished to be where you are today. Now think about some risks, small or big, that you took to get you here. When you really take some time to contemplate this, you will realize that you’ve been taking risks all along. Entrepreneurship, by design, will stretch you beyond your current capacity with each new undertaking. When you launch your business you’re stretching yourself. When you add a new product or service, you’re stretching yourself. If you decide to open a bigger office or expand to another location, you’re stretching yourself. Virtually, every decision you make to do something new in your business is a risk. Taking risks will ultimately become just a normal business activity.
One of the biggest risks that I took in my companies was expanding operations throughout Africa. It required me to build a team with people from other countries who followed different customs and were raised in different cultures, and then train them to carry out the vision of my company in their countries. It took a great amount of trust to have my brand represented by people I did not know. I mitigated my risks by properly vetting my new team, getting insights into their cultural differences, and assessing the market. I spent lots of time building relationships with my new team because they would be responsible for leading the charge of offering my company’s services in Africa. After almost a year of proper planning and training, I spent three weeks there to launch my services.
The expansion process went relatively smoothly because of the meticulous advance preparation. Was it perfect? No, but I actually learned some things that I implemented when I expanded the company into more countries. Overall, it was very successful and was less risky because I knew what I was doing. I now have a blueprint that I can use when expanding into new markets. I also made so many great personal and professional connections that have enriched my life and business immensely. I would not have otherwise built these new relationships if I had allowed my fears of uncertainty to take over. On the other side of my comfort zone was one of the biggest blessings.
One of the main reasons that people resist taking risks is fear—more specifically, the fear of failure. This is why the brain has to be rewired to focus more on the wins, gains, and successes than the potential losses. Once you have retrained your mind to think this way, your default thinking will shift from “what if it doesn’t work?” to “this is going to work!” Remember that comfort zone you’ve grown accustomed to? Say goodbye to it if you want to be ready for a new level of success and venture down the path of entrepreneurship. As the proverb goes, “nothing ventured, nothing gained.”
If you are afraid to speak publicly, for example, the most effective way to overcome the fear is by doing it. Similarly, if you are averse to risk, the best way to overcome your aversion is by taking it head on. Continuing to avoid the risk won’t make it go away, nor will it get you any closer to accomplishing your goal. There is a popular acronym for fear, F.E.A.R.—False Evidence Appearing Real. The fear exists only in your mind. Once you have conquered your fears by doing what you were once afraid to do, the fear lessens or is eliminated completely, and it no longer has any power over you.
It will be most helpful to surround yourself with big dreamers and action-takers who will stoke the flames of your dreams and passion. This circle of like-minded people won’t feed into your fears, rather, they will encourage you to move forward. If you don’t yet have this type of support system, then it is better to minimize or avoid sharing your entrepreneurial dreams until you connect with such people. Those who don’t share or appreciate your enthusiasm and are perpetual naysayers, I call them dream snatchers because they have a way of snatching the life right out of your dreams! You can only expand your capacity to take risks when you are around others who do the same things or share the same passion as you do, or, at a minimum will support you in your endeavors because they know and appreciate what you do. Be intentional about expanding your network.
In order to have the right mindset on risk, you must first view taking risks as a positive action and not a negative one. You must see it as a necessary part of succeeding as an entrepreneur. Taking risks doesn’t mean you will achieve the desired results, but not taking risks will certainly guarantee you won’t. The beauty of taking risks is that you will achieve what most people won’t in life and in business.
The laws of nature are set up in such a way that we reap what we sow. You can only see a return on what you invest. No investment, no return. You can wish for an apple tree, talk about it, and read up on how to plant and grow one. However, until you take the action to prepare and fertilize the soil, plant the seed, water it, and prune it, you will never get to see the tree or enjoy its fruits. This concept is also true in business. You may have a novel business idea. You spend time studying and learning more about it and even discuss it time and again, but if you don’t take the actions necessary to make your business idea a reality, it will never materialize. You must take the leap into the unknown if you want to realize your dreams.
COMPANY EXAMPLE: Dropbox
Dropbox cofounder, Drew Houston, took two big risks that led to two big payoffs. The first was when he was still a college student, he decided to show up unannounced at a startup hub that funded early-stage startups. He was turned away, but instead of quitting, he went on a mission to find a cofounder and then later returned to properly apply and received the startup funding. The second risk was when Houston refused an offer that Apple cofounder Steve Jobs made to acquire Dropbox while it was still in its startup stage. Many startups would have jumped at the chance to be acquired by Apple, but the risk of deciding not to sell has led to Dropbox now becoming a $10+ billion company with over 500 million subscribers. (Olson)
MINDSET EXERCISE 1.1—Mindset Risk Analysis
The Mindset Risk Analysis is designed to help you examine the actual risks you would need to take to realize the rewards you would like to see in your business. You will also be able determine real action steps that you can take to minimize losses or failures which could potentially happen as a result of taking the risk, which is also known as risk mitigation.
Fill in the chart in the following exercise. In the left column, make a list of the risks you must take to launch or advance your business. In the middle column, list actions that you can take to mitigate or reduce your risks. In the right column, list the potential reward you might gain as a result of taking that risk. An example has been provided for you.
Actions to Mitigate Risks |
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Example: The exposure to financial losses by reducing work hours at my job to operate my business full time |
- Save 6–12 months of income - Cut all unnecessary spending for 6–12 months - Downsize living accommodations - Reinvest all profits back into the company |
- Faster growth of sales in business - Greater personal fulfillment |
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Questions to ponder: What new information did this exercise reveal to you about your ability or willingness to take on risks? Did you discover from your “Mitigating Risks” answers that you have more control over the outcome from the risks than you realized? Did your “Potential Rewards/Gains” outweigh any perceived losses you had in your mind? If you said yes to both, then you are on the right track toward thinking like an entrepreneur! If you found it challenging to come up with practical ways you could mitigate your risks, don’t worry; there is room for growth.
This is an exercise that I would encourage you to take each time you need to weigh the risk against potential rewards. Note, I did not ask you to weigh the risk against potential losses. If you do everything that you can to minimize your losses, then your focus should be on doing what’s necessary to get the potential gains. Winners don’t focus on losing. This doesn’t mean that you shouldn’t estimate the costs before launching something new. It simply means that once you do, it’s time to focus on the most effective ways of getting the results you want.
Another way to look at risk is the willingness to give up something in hopes of gaining something more. More questions to ponder: Would you be willing to give up predictability for the ownership of your time and schedule? Could you forsake a regular social life or leisure and dedicate yourself to spending more time on building a successful business? Are you prepared to give up a steady paycheck to remove the income ceiling on your salary? What are you willing to do to remove the thing that’s standing between you and the dream life or business that you want? These are great questions to ask yourself and reflect upon as you evaluate what’s really important to you.
Success requires that you expose yourself to the unknown, right in the middle where the risks occur. Risk-takers often achieve success beyond their imagination because they are willing to do things that others won’t do. This is a major reason that there are more employees than employers in this world. If you want what you’ve never had, you have to do what you’ve never done. There’s no getting around this principle. You are going to keep getting the same results if you continue doing the same things; expecting anything different is the classic definition of insanity. Risk is risk simply because you’re doing something new and discovering what will work and what won’t. In order to overcome risk, you simply have to take it on. Do it. Be afraid if you have to, but do it anyway.