Framing risk
Risk has a bad reputation. In both everyday and business context, when we say that something is “risky”, we usually mean “dangerous”, “maybe you shouldn’t be doing that”, “you don’t know what you’re doing”, and so on. I’d like to reset that thinking in myself.
In fact, “a risky business move” is more of an oxymoron. A company puts its resources, means of production and employees’ time and effort into use today for an expected return in the future. The future is unknown and unpredictable by definition. Therefore, risk is the basis of all economic activity. It’s just that we tend to forget that. But why?
Entrepreneurs out there hiring their first employee right now are, through that action, taking a risk. They don’t know what the outcome is going to be. Hiring that person might turn out to be a bad choice for all sorts of reasons, which is ultimately relatively easy to detect and fix. But the potential upside is much larger than the downside: together, the team may do things that are much larger than the sum of their individual efforts, and the hiring decision may be the moment a successful company is born. Entrepreneurs know this, as much as they know that taking that “risk” is the only way to move towards the goal they are trying to reach. No “risk”, no fulfilment.
In 10 years, 40% of Fortune 500 companies will no longer exist. — John Chambers, CEO of Cisco
We hear so often that big companies are “risk-averse”. This is exactly why a lot of them die. As much it is clear to entrepreneurs that making change (sometimes also known as “disruption” or “taking risk”) is a prerequisite for success, to people in many big companies it is not. Thoughtful entrepreneurs just starting their business can have their antennae tuned directly to signals of environment. This is what allows them to learn, adapt and build the right things. It is the later stage when things become tricky. People in an enterprise may not realize that the bigger their organization, the thicker are the layers of isolation from the outside world and its constant changes.
This isolation effect can exist in small companies too. The whole company, most importantly the founders, can be dragged into scaling a product that brought them initial success, too busy to notice a major change in landscape which might be happening in the ecosystem and about to make their business obsolete.
So I’d say the next time you find yourself pondering doing something risky, go ahead. Just make sure you’re picking the good kind of risk and prefer the action with a much bigger upside than downside.
Initial version of this post was published on Rendered Text blog. This is my first post here — hello Medium! :)
