If you’re a small business owner, taking risks is part of your job. From the start, people who create their own businesses are taking a risk by forgoing the comfort of a stable job for the chance to be their own bosses and do something new.
While 84% of business owners say they consider the average small business owner to be a risk-taker, it’s important to note that the most successful business owners are different. As Leonard C. Green, a professor at Babson College, tells his students: “Entrepreneurs are not risk takers. They are calculated risk takers. The difference between risk takers and calculated risk takers is the difference between failure and success.”
With that in mind, how do you better calculate if the risk is worth taking? How do you ensure that you’re taking calculated risks to become a successful small business owner?
Balance Emotion & Logic
No matter who you are or where you are in life, taking risks can feel unsettling. If you are not afraid, odds are you are underestimating the risk. If you are too afraid, you might be overestimating the risk. You have to strike a balance. Examining the facts and considering your potential gains and losses will help you better evaluate if the risk is worth taking.
We recommend making a pros and cons list and assigning value to those pros and cons. If the benefits outweigh the losses, you may have a risk worth taking.
Consulting a mentor or advisor you trust is always a smart move. Talking things through and asking for advice from someone who has been in your position will give you more insight into the path you’re considering. Use your resources and learn from the choices your colleagues and role models have made.
If asking someone else doesn’t help, ask yourself what advice you would give to someone else. Taking yourself out of the picture will help you rationally assess the level of risk.
This one may seem like a no-brainer, but it’s important to mention. It’s easy to get caught up in the excitement of a new venture and forget to do the research that the new venture requires. In addition to consulting your advisors, understand the market size, evaluate your competitors, and crunch the numbers.
There may be times in your small business journey where you will have to pivot and learn as you go, but thorough research and a strong understanding of your marketplace position will go a long way.
It’s important to note that after you decide to take the leap, your research doesn’t stop. You must continue building a process and researching how to best implement your decision.
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We all know you can’t haphazardly throw caution to the wind and hope for the best. Odds are, your market is ever-changing. You need to know how your business can adapt to the changing times and marketplace.
Taking calculated risks means being proactive, being flexible, and trying new things. Testing your ideas and getting feedback through blogs, talking to customers, and social media surveys can help you better understand where you stand and where you can go.
Another important item to consider is innovation. You want to be profitable, but you also want to take risks in order to open up new opportunities for your business. Taking calculated risks helps you accomplish both.
Elise Mitchell, founder of Mitchell Communications Group, says: “To identify the best opportunities, you have to understand how your market is evolving. Otherwise, industry changes and profitable opportunities will fly past you, giving your competitors an advantage. Stay on top of change by constantly monitoring your environment, examining other industries’ best practices, staying current on market trends and continually improving yourself. Look for emerging patterns and draw actionable insights from them so you can make informed decisions about where to invest.”
Make a Decision
There comes a time when you have done the research, asked the important questions, and sorted out the prep work. Yet, you’re still not ready to dive in. The time spent assessing the risk and weighing the pros and cons feels wasted if you can’t come to a conclusion. What’s holding you back?
When talking about his choice to build Amazon, Jeff Bezos said: “It would be a 100 percent chance of regret if I didn’t try and basically a 0 percent chance of regret if I tried and failed. So I think that’s a useful metric for any important life decision.”
If you’re able to channel his attitude and logic that proves the pros outweigh the cons, you’ve got nothing to lose and everything to gain.
It’s important to consider all the possibilities and critical to jump in at the right time, with the right plan. Yes, small business owners are risk-takers, but the smart small business owners take calculated risks, not random gambles.
What are some risks that you’ve taken in the past? We’d love to hear from business owners about worked out and what didn’t. Let us know your thoughts on LinkedIn or Twitter. Check out more tips, tricks and leadership stories on the ScaleBlog.