Q: We hear so much about taking a risk in business. I have found that risk-taking is over-rated. A smart, savvy small business owner usually is not a big financial risk taker. We are actually a fairly conservative lot, so please use your bully pulpit Steve to help set people straight. Thanks in advance.

James O. Phoenix, AZ

A: One thing I have noticed over the years is that risk-taking, especially financial risk-taking, occurs more in the start-up phase of business and necessarily so. The new entrepreneur and new business both have less to lose and more to gain by going for it and as a result, they often do.

Sometimes it works. Sometimes it doesn’t.

That is one reason why you hear about so many new small businesses failing. Without a safety net and lacking a track record, there is little room for error. If that huge first or second risk does not pay off, adios amigo.

But as you note, as a business matures, there is less need to risk and much more to lose such as equity, customers, a brand, and employees. The list of what is at stake with a big business risk is long. That is also why so many small businesses top out at a certain level and never get much bigger than the middle of their comfort zone.

It’s comfortable there.

But from where I stand, the best small businesses never stop risking. The difference is they get better at it. Great entrepreneurs continue to look for opportunity and once spotted continue to go for it. The difference is, and it is a significant one, as they grow in their business acumen, the experienced entrepreneur learns how to make risk-taking less risky.

If you want to grow your business next year then do what they do. Look for opportunity and take smart, calculated, and prudent risks. Don’t bet the bank on one idea because you can lose a lot of money that way. Don’t tell the world about your big vision because you can lose a lot of face that way. Don’t re-jigger a lot of your resources towards a new, untried idea because you can lose old business that way.

Instead, consider taking a small step and seeing if it looks fruitful. Give yourself a small budget to play with and do some due diligence. Keep it on the down-low until you know it will work.

Personal example: I got a business idea about three years ago and it was one of those dang ideas that just wouldn’t leave me alone. You know the ones. But I never moved forward with it because we never wanted to commit the time and money necessary to launch it. It seemed a bit too risky. But just recently I realized there was a way to test the idea inexpensively online. So now that is what we are doing. It is still a risk but it’s a small one to start. If it pays off we will ramp up and take a bigger risk. There was a time where I may have started with the bigger risk. But not now  because now I see there is no need to.

See an opportunity then take a prudent risk. Start small, test, analyze, then decide. That is a mature risk formula.

Upon getting to a lake, some people like to just jump in while others like to get in slowly and get used to the water. What I am suggesting is that if you want to continue to expand your business, there is no need for an all-or-nothing approach. There plenty to be said for getting your feet wet first.

Today’s tip:
“The reasonable man adapts himself to the conditions that surround him. The unreasonable man adapts surrounding conditions to himself. Therefore, all progress depends on the unreasonable man.” George Bernard Shaw

Weighing Risk vs. Opportunity

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