How is your appetite for taking risks?
We are all made up differently; some of us are more comfortable taking risks from early on in life (our parents would probably call this stupidity!). Doing something when we don’t know the outcome in advance can be dangerous – diving off a ledge into the sea without knowing how deep the water is, for example. Some consequences can even be fatal, but kids do these types of things all the time.
When it comes to business, we potentially step into a situation without knowing the outcome. We risk our time, our energy and, of course, our money (or someone else’s money) entering into a project and we risk losing it all.
Is it always a risk when starting a business?
Starting a business inherently involves risk, whether it’s financial, operational or strategic. Of course, this stops many people from starting the business in the first place, even if it’s their desire to do so. What if I lose all my money? What if I lose my home? What if I look stupid? What if it fails? What if I can’t do it? These are all thoughts that might pass through our minds when we think about starting a new business.
How do we mitigate risk?
The common-sense approach to dealing with risk is to try and take away as many of the unknowns as possible. This means doing appropriate research and learning as many relevant skills as we can. Starting a business in hairdressing, first and foremost, involves learning to be a good hairdresser, however, the skills required for running a business are entirely different. When learning to be a hairdresser, it’s unlikely that you will learn how to put together a realistic business plan, a cashflow forecast or even produce a simple P&L. Yet these things are essential if you want to increase the chances of your business being a success.
Investing time into gaining as many of the required skills as possible is well worth it and, of course, helps to mitigate the risks. However, once it’s time to light the fuse, so to speak, there will always be an element of risk. It’s important to know the difference between ‘gung-ho stupidity’ and calculated risk.
What has age got to do with it?
Most people have a declining appetite for risk; the older they get, the less risk they are comfortable with. In terms of business, this is quite noticeable. If you start a business in your twenties, losing ‘everything’ still gives you lots of time to recover.
As people get older, it gets harder. It’s hard to put your house on the line when you are married, have a mortgage and two children to put through school. The closer you get to retirement age, the more unlikely you are to risk ‘everything’ as it’s more improbable that you could rebuild your wealth if your business fails.
No risk, no gain…
Ultimately, it’s rare for someone to achieve business or financial success without significant risk. Most of us who have built large businesses have, at some point, had to put pretty much everything on the line – borrowing money and using all our existing assets, including our home, as collateral to raise the capital needed to get our dream off the ground.
Sometimes we win and sometimes we lose; there are no guarantees. Dealing with failures along the way is actually part of the growth process. Remember, people who are unwilling or unable to take the big risks are unlikely to have the big gains.
