As anyone who has been to a casino knows, risk can be an exciting prospect. It takes some guts to load up a stack of chips and then roll the dice. The more ambitious the bet, the more potential success — and damage — can be created.
The same can apply to small businesses. Brave steps forward can blaze new trails or cause missteps, and that goes for newbies and experienced entrepreneurs.
Lyndon Wood describes business risk in a story for The Huffington Post, calling it “… something that could result in financial loss or it could be linked to damaging your reputation. Yes, taking a risk in business could backfire, but adopting a risk-taking approach can be the best thing you ever do for your business.”
Wood also points to a 2011 quote by Facebook CEO Mark Zuckerberg: “The biggest risk is not taking any risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
Here’s a look at how risk-taking plays into a small business owner’s decisions and success.
It goes with the territory
That’s the kind of advice that experienced small business owners may be quick to share with new ones. And though it may sound blunt, it’s valuable information. Larry Alton explores this for Entrepreneur, writing, “If you aren’t prepared to take risks, you have no business being an entrepreneur.”
“Entrepreneurship is fundamentally linked to risk-taking,” he explains. “You’ll need to invest some of your personal capital into a growing business — in most cases. You’ll stake your reputation on an unproven idea. You’ll sacrifice a steady paycheck for the first several months to a year — again, in most cases. … Accepting risk is a part of the deal, and you need to be ready for that as you enter the entrepreneurial world.”
Considering risk doesn’t mean that small business owners should go completely against their way of thinking. That could lead to disastrous results. In a story for Inc.com, Drew Hendricks recommends a less drastic approach to “determine what you can afford to lose.”
“Companies that know they can’t afford a large flop should start with baby steps,” he writes. “Take small risks to test the water and gain confidence. This should help you build a higher tolerance for risk, which means your business will trust itself enough to take larger risks in the future.”
Understand the different types
Alton describes two kinds of risk-taking in business in his Entrepreneur piece. Calculable risks, he says, “involve a series of knowns that allow you to reasonably predict the odds of success.” Ambiguous risks are more complicated:
“Most business risks fall into this category, because so many factors, like consumer behavior and economic shifts, are difficult to quantify or predict. Then there are complete unknown risks, which arrive when you bring something truly unique to the market. Knowing the differences between these risks can help you better understand how ‘risky’ your decisions at certain points actually are.”
Consider the consequences
It’s an unpleasant exercise to ponder disastrous business scenarios. When it comes to risk-taking, however, it’s worth the uncomfortable moments. As Wood writes, “I’m not suggesting you will fail but there is always a chance — are you prepared for that?”
“Looking at the worst possible outcome is important when taking risks which have the potential to boost your business growth,” he writes. “If the risk involves a degree of failure which you don’t think you or your business can handle, then rethink other options. But if you know that even the worst case scenario is something you can deal with, the risk is worth it.”
Woods also notes that the negatives can overshadow the positives, which can then derail a potential success: “It is very easy to dwell on the potential negatives of making a risky move in business, but what are the benefits? If you can stack up a good long list of benefits which will put your business in a better position than it is today, then this is a risk worth seriously investigating.”
Avoid getting lost in the details
The consequences are essential in the decision-making process. But Hendricks offers another line of thought in his Inc.com piece: Overanalysis can be harmful to the business. Being methodical may have its benefits, but taking action can’t take forever.
“Leaders become paralyzed in the business world when they spend too much time worrying about consequences and potential mistakes,” he says. “Overanalyzing details before the plan is set in motion halts progress and weakens the potential of the company. … Leaders should work to maintain relationships and communication, but push past the details and take action. It’s wise to meet with advisors and conduct brainstorming sessions for future initiatives, but you also need to get past the planning phase if you’re truly going to make a difference in the future of your firm.”
Risk as a difference maker
As in the gambling comparison, risks can run from riches to bankruptcy. Everyone wants to hit the jackpot, of course. But some bets have more realistic levels of value. As Alton writes, all risks can be differentiators:
“Because most people are unwilling to take risks, the risk-takers of the world naturally stand out in the crowd, and as we all know, entrepreneurs and businesses that stand out are the only ones with a shot at breakout success. Even if you end up failing, you’ll end up ‘failing in style,’ so to speak — and you might reveal more opportunities for yourself just because you were willing to stand out and break away from the norm.”
Make it part of the culture
Any significant culture change in a business can be an enormous challenge. For the small business owner who is risk-averse, transforming the company into one that is open to risk is no small feat. They must show that that they are “truly serious about it,” as Jim Haudan writes for Inc.com. “They need to be willing to hug the failures, rather than dismiss them or make an example of people who try something new and fail. This requires a strong and persistent culture change.”
Haudan examines three ways to do this:
- Go against the grain: Businesses often get caught up in the “that’s the way we’ve always done it” way of thinking. Instead, Haudan writes that the leadership and staff will “need to get comfortable challenging the status quo and make it a very public statement to the effect that risk taking is okay under the right circumstances. This most commonly can occur by challenging a practice, habit, norm or behavior that is not aligned with a vision or performance goal.”
- Have and give support: Haudan calls it “air cover,” as in the business leader and staff supporting each other: “It is helpful to know someone has your back when you climb out on a limb. Without the challenge and the air cover, we really won’t know what is possible.”
- Understand the good and the bad: “Leaders must harvest the learnings from success or failure that can be scalable to other areas of the business,” Haudan writes. “Celebrate these learnings, what they led to, and the individuals who gave birth to the insights. Once these learnings are harvested, expand and scale whenever possible.”