Running your own thing – especially at the start – looks and feels like a risky business. How do you get better at recognising, managing and taking risks?
Risk is a funny thing. When I was just about to start my own business, another entrepreneur told me that while starting your own business looks risky, it’s actually less risky than working for an employer because, when you work for someone else, your employer is your only client and they can get rid of you at any time. In contrast, a founder/ small business owner has a number of customers and clients so their risk is hedged.
If that makes perfect sense to you then, I have news for you – however boring and stolid you consider yourself, however boring your family and friends consider you, if you’re an entrepreneur or small business owner, you look to the world like a risk-taker. This doesn’t mean that you are reckless but it does mean that to do what you do successfully, you need have a healthy appetite for risk, a relatively high tolerance for uncertainty. Deciding to venture away from the conventional security of working for someone else, deciding to take on your own responsibility and build your own structures will look to many like a risky things to do whether you’re a plumber, a photographer or a programmer.
If you’re an entrepreneur or small business owner, you need to have a healthy appetite for risk, a relatively high tolerance for uncertainty
The word responsibility is key here. It’s often seen as the opposite of risk but, when it comes to running your own business, risk and responsibility are closely aligned. The reason for this is that, when you’re running your own thing, the responsibility sits with you, so every risk you take has to sit alongside your ultimate responsibility for the business. You have responsibilities to your clients or customers, to any investors or employees or partners you have including family and dependents. It helps to see those responsibilities less as a deterrent to taking risks and more a really helpful framework to help you evaluate any risks you’re considering taking.
Responsibility is often seen as the opposite of risk but when you’re running your own business, risk and responsibility are closely aligned
People often talk about a risk-reward axis but I think it’s easier to think how risk is directly correlated to value. A good question to start with might be, “What’s the worst that could happen?” Followed by “And if that were to happen, could I/ we/ the business cope?” It’s also worth asking the reverse question, “What’s the best possible outcome?” and “If that happened, would it justify all this risk/effort?” The answers to the final question can be surprising. Say the realistic answer to the penultimate question was “a potential 2% increase in sales” and you were working 22 hour days and betting all the assets of the company and your house to make this happen, you might reconsider.
Our appetite for risk varies not just from person to person but also from circumstance to circumstance and at different stages of a business’s growth. Early on, everything seems like a risk – you’re constantly taking punts to see what works. As your business or clientele matures, some of that settles a bit.
However, founders who thrive long term have a high tolerance for uncertainty and a healthy business is one where you never stop taking risks, not reckless risks for the sake of it, but considered experiments that have the potential to grow your business in range or depth or direction. That’s because because the right risks are the soil which from which a business grows and evolve; it’s always worth remembering that it was the risk taker in you that started off all of this in the first place.