Between calculated risk and reckless decision-making lies the dividing line between profit and loss.
—Charles Duhigg, Pulitzer Prize-winning American journalist and author of The Power of Habit: Why We Do What We Do in Life and Business
One distinctive characteristic of a successful entrepreneur is being able to make smart decisions about taking risks. Many people shy away from the very idea of risk because they associate it with danger. And while mismanaging risk can certainly lead to perilous outcomes, effective risk management can increase the likelihood of getting the results you want. If you look up risk in any thesaurus, you will find associated terms like danger, hazard, and peril. But you will also find words like possibility, prospect, and opportunity. Risk merely indicates that there is a possibility of a negative outcome; how great that possibility is depends on both external factors, such as industry niche and competition, and internal factors, such as personal character qualities, abilities, and resources.
Risk-taking may be intimidating, but most people take risks that they don’t consider risks. Current statistics from the New York Federal Reserve indicate that student debt is second only to mortgage debt. Without a guarantee of the desired salary or even a job at all, this is a financially risky undertaking. However, current Bureau of Labor Statistics currently report that the employment rate and average salary for college grads with a four-year degree are substantially higher than those for high school grads, thus reducing the likelihood of a negative outcome and making it a less risky option than foregoing a college education.
Starting your own business, on the other hand, carries with it an undeniably high level of risk. According to the U.S. Small Business Administration, only one-fifth of new businesses last longer than a year, and only half of the remaining ones make it past their fifth year. After 10 years, less than one-third of those businesses still exist. The odds are not in an entrepreneur’s favor, but despite these discouraging statistics, successful entrepreneurs are not dissuaded from moving forward.
Entrepreneurs, in general, handle risks better than others. They don’t run the other way when confronted with the possibility of a negative outcome, but at the same time, they don’t dive headfirst into the risk pile. Rather, they carefully evaluate their options and marshal their resources to ensure that they have maximized the potential of a positive outcome and established a backup plan—something in place to help cushion the fall should the venture take a bad turn. This form of calculated risk-taking enables entrepreneurs to break free from the shackles of safety and confidently progress in their endeavors.
While stories of entrepreneurs who have successfully overcome obstacles are rampant, rarely do those stories delve into the careful planning of their ventures. Among their other positive character qualities and habits, successful entrepreneurs participate in calculated risk-taking and use whatever resources they have at their disposal to limit the impact if it ends up negative. Those resources might include money, associations, skills, and more. Mark Zuckerburg, for example, took a calculated risk when purchasing Instagram for more than it was valued, but he first ensured that he had enough financial backing to cover any potential losses. Walt Disney, the well-known founder of Walt Disney Co. and creator of Mickey Mouse, suffered setback after setback in his entrepreneurial efforts until eventually joining up with his brother, a shrewd businessman, to launch a successful business. When the character he had created was then stolen by a competitor, joining with the right person allowed him to recover and move forward.
Successful entrepreneurship does not mean avoiding risk, but it certainly doesn’t mean blindly and haphazardly running toward it. Safely navigating risk requires careful planning, adequate resources, practiced resilience, and a sense of confidence in the future. It involves being willing to lose everything but taking steps to minimize the possibility of that happening.
