It is almost impossible to achieve anything without some level of risk-taking and failure. Each decision you make in your career has some sort of risk associated with it. In the US and open markets worldwide, entrepreneurs and small business owners realise the risk when they venture into new zones, the chances are slim, and the risk of failure is substantially high. However, entrepreneurs still charge headfirst into the new opportunities in business development, despite the risks. It is because successful entrepreneurs have mastered the skill of taking calculated risks, thus, reducing the possibility of laying everything they have on the line. Therefore, the key to long-term success is to take calculated risks which can reduce the negatives and maximise the positive consequences.
A calculated risk is a thoroughly researched decision that exposes people to a level of risk that is weighed against a sufficient possibility of benefit. Examining the risk is worthwhile involves diligent cost-benefit analysis. Generally, calculated risk employs business risk, but people can take calculated risks in their personal lives too. Everybody from a business owner to gamblers to lovesick teenagers inherently takes some level of calculated risks in their endeavors.
If a possibility pushes you from your comfort zone and makes you vulnerable—emotionally, financially, or in personal reputation aspect—that is considered a risk. However, when you weigh the anticipated pros and cons and examine that the expected positive outcome outweighs the possible negative outcome, you are considered to be taking a calculated risk.
Calculated Risk-Taking Vs. Foolish Risk Taking
There are huge differences between calculated risks and foolish risks. The idea is to understand and distinguish one from another.
Calculated risks involve diligent research and thorough observations. The outcomes may not always be positive and fruitful; however, you’d have done sufficient legwork to realize that the possibility of success is higher than the chances of failure. On the other hand, a foolish risk that is taken without prior research and diligence for the possible negative outcomes. Thus, a foolish risk may deliver a positive result, but you’ll be going into the grounds blindly and won’t know what awaits you on the other side. Hence, you are rolling the dice.The analytical and critical voice weighs the pros and cons, and if you are a pessimist then you’d more likely to play safe by staying in your comfort zone.
Generally, most of us shy away from taking risks because of the following common reasons:
- Unrealistically High Level of Fear of Failure:
Pragmatically speaking, the risk of anything not turning out good is usually much lower than our predictions. At our ore, most of us happen to be pessimistic and give risks an unrealistically high probability of failure and get intimidated by it.
- Exaggerated Results:
Despite the fact we are setting the odds correctly, we may tend to exaggerate the negative outcomes. Our brains can come up with unbelievable worst-case scenarios and expect the risk will turn out bad.
- Incapacity to Manage the Consequences:
Ultimately, it is fairly common that we tend to underestimate our ability to manage the consequences of our risk. Certainly, something probably could go wrong—however, mostly, it could be a situation you can handle well.
If any of the above cases sound familiar to you, and you may have other names for them, understand that these are merely excuses our brains come up with to avert us from risk-taking. Once you get a hold and hone the calculated risk-taking skills, you will have no difficulty venturing into new opportunities.
Benefits of Calculated Risk-Taking
Calculated risks are an inevitable element of success, so it is smart to mentally welcome the idea in front of you, even draft a business plan. Most entrepreneurs have to risk some of their assets to fund the initial operations. If you can push your fear of risks aside, several benefits await you on the other edge. When you are spending money on hiring staff, renting office places, or building a prototype, you are laying the ground for the future development you require to succeed.
Tips To Hone Calculated Risk-Taking Skills:
The foolish risks are easy to spot, but the disguised risks can be tricky and may be difficult for you. To increase the chances of taking calculated risks with the anticipation of high positive returns, you can follow the below-given tips.
- Be Meticulous and Thorough In Your Research
The first step is to perform your due diligence. To take sensible and calculated risks, you need to familiarize yourself with every little nuance and detail of the decision you are about to make. This will help you in noticing the red flags and potential dangers along the way. Research is an integral part of taking calculated risks. Gamblers and bettors base their money on research instead of making a decision based on emotions.
As an entrepreneur, you also need to realize the significance of leveraging the resources available to you. Any situation where you are required to make a decision, consult with a trusted advisor, assess the numbers, and negotiate the best-suited deal. This is the only way you can ensure that the risk you are taking is a calculated one and you are likely to get positive outcomes.
- Anticipate Failures and Mistakes
A wise risk-taker can anticipate and be prepared for the mistakes and failures that might come along the way. Before acting on the decision, you need to think of all the possible outcomes. Make sure to consider the positive outcomes, however, be thoroughly prepared and focus on the negative ones.
If you lose the money deal, think of the alternative ways your business can respond to it. If a partnership is broken, establish and maintain a course of action that could help you. If the project falls behind, think of the ways you can meet the deadline. Brainstorm the questions and find suitable alternatives to help you navigate through the mistakes and failures. While you are at it, you need to recognize that if there are numerous potential hurdles then it is indicative the risk is too high. If you keep avoiding the practical mistakes and failures that might happen, then it is better to move in another direction.
- Set Manageable and Achievable Goals and Milestones
When you take a risk, the end goal or returns are most likely to be months or years from now. You need to realize that there will be ample time between the start and the finish line, so it is recommended to develop a solid course of action. It involves meticulous identification and execution of goals and milestones.
You must have heard people discussing the significance of goal setting in achieving success. However, most of the discussion involves the importance of long-term goals or end goals. You may not hear much about short-term goals or milestones. While the target is the end goal, we can’t argue the benefits of milestones, as they keep you on track. Calculated risks are represented by various goals and milestones. Keeping them in place before taking any decision can help you identify when the risk poses to be too high for your tolerance.
- Be Flexible and Prepared to Pivot
It does not matter how informed and calculated a risk you took, you need to ensure you can handle whatever comes your way. A business plan rarely—if ever—goes exactly like it is formed. Often the outcome can be better than the expectation, whereas on other occasions it can turn out worse. While you can’t control the outcomes always, you can certainly control how you respond and manage unforeseen situations. If you mop around and repent your decision, you are most likely to fail. Nonetheless, if you are flexible and pivot, you’ll be on your foot and figure it out.
You may hear the success stories of entrepreneurs, who beat the odds and flourished at the end. In the majority of the situations, there were incidents where things went wrong. Nonetheless, the decision-makers were flexible and prepared to pivot to reach success.
- Learn to say ‘No’ And Jump When It Feels Manageable
You need to set healthy boundaries and be willing to say ‘No” when you are not able to deal with the set project. Saying yes to too many projects and milestones will only end up in burnout. Therefore, you need to analyze the tasks that are mandatory and beneficial to your venture. If you have done due diligence and the leap feels beneficial, then take the plunge. If you don’t jump now, you may never jump in the future. So, be a little scared and still take the risk.
In a nutshell, when it comes to risks, you should say yes to calculated risks and refuse to take the foolish and hasty risks. It may sound simple, but that’s precisely what there is to it. Acquire and cultivate the skill of taking calculated risks and persevering through the failures, and you are good to achieve anything in the future.