Taking Risks

Usually when we hear the words “risk taking”, we think that this is something bad. We sometimes assume that we should avoid all risks since they are dangerous.

Risks Are Everywhere

However, the truth is that we take risks all the time. Everytime we step in a car or on an airplane or go skiing, we are taking risks. (Even just living in California we face the risk everyday of having an earthquake!)

So there really is no way to avoid taking risks nor do we want to. The important thing is to look at the worst that could happen and the best that could happen. This is sometimes called the risk/reward ratio.

Risks In High School

In high school, one of the scariest risks most kids face is to ask someone to a dance. However the worst thing that could happen is that they get turned down. On the other hand, the best thing that could happen is that they end up having a really good time and maybe start a long term relationship. So in this case the risks are small and the rewards are high.

Unfortunately, many kids in high school take a lot of risks that don’t have good risk to reward ratios. Sometimes the passenger in a car might be playing around and grab the steering wheel or they might drive after they have been drinking or they might jump into the ocean from a rock jetty. In my high school, I know of kids that did these things and ended up being killed or paralyzed. So the tremendous risk they were taking wasn’t anywhere near the small reward that they might have gained from it. It is too bad that they didn’t think about the risk/reward ratio before they did it.

Business Risks

In business, we don’t usually face these life-or-death risks, however we do take risks on a regular basis. One of the big risks we take as a business is to develop new products. We are risking time and money now in the hope that we will be rewarded in the future by selling lots of them. We also take risks when we do advertising, hire people or rent an office.

There are also more personal risks that we take on a daily basis. Here are some we might run into:

• A customer calls asking for information on a product that we are not completely familiar with? Do we answer the best we know how or wait for someone else to talk to them?
• Our boss asks us to add a feature to a product that we feel won’t really add value to it? Do we tell him or simply do it?
• A customer wants information about a product and nothing is available. Do we write something up ourselves to send it to them or wait for someone else to do it?

There are no easy answers to these questions. In each case, we need to weigh the risk/reward ratio as best we can and then use our best judgement.

I emphasized the phrase “use our best judgement” because that is what it usually comes down to. There is no way we can predict every circumstance and draw up guidelines on how to handle them. So most of the time the only way to proceed is to use our best judgement.

Making Mistakes

When we take risks, we will sometimes make mistakes; the two go hand-in-hand.

My son used to watch a kid’s program called “The Magic School Bus.” In it the teacher exhorts the children to “take chances, make mistakes.” What a wonderful thing to tell kids! Once they become comfortable enough to take chances and make mistakes, their ability to learn will skyrocket!

It is the same with us. If we are not allowed to make any mistakes, we won’t be able to take risks which means we will never get the rewards that come from it. But if we are comfortable in taking chances and making mistakes, then we can really accomplish a tremendous amount.

The important thing is to make new and interesting mistakes. If we keep making the same mistakes over again, it means that we are not learning from them.

Courage

Once we have carefully studied a situation and decided that a risk is worth taking, we can still find that we are too scared to proceed with it. This is where we need courage.

What is courage? Here is one way to look at it. Let’s say someone is trapped in a house that is on fire and the only way to get out is to run through a wall of flames. If that person runs through the flames because they think they won’t get burned, that is ignorance. However, if that person realizes that they will probably get burned but runs through anyway, that is courage. Now if someone on the outside knows that they will get burned but runs through the flames and back to save someone else, that is heroic.

So courage is not being ignorant of the risks. It is knowing the risks and proceeding anyways because the rewards outweigh them.

Summary

In business as well as life, we need to analyze the possible risks and rewards of our decisions. We shouldn’t worry about making new and interesting mistakes since this is part of taking risks. And once we decide to take a risk, we need to have courage to carry it out.