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You hear about the word “risk” all the time. The mere mention of the word generates fear in most “normal” people.  If you are constantly wondering what your risks are in business, I guarantee you are either an attorney, an accountant or getting nothing done as an entrepreneur.  For attorneys and accountants, it is their job to discover risks and help protect their clients from risks (at least that’s my perception).  For entrepreneurs who create a business from nothing, there are many risks and some of them actually exist.

The Reality of Risk

Risk is all around us every day.  A major cause of accidental death in the United States is car accidents, yet millions of people get in their cars every day and drive to work.  There is a lot of it involved just in driving to work, yet people do it anyway.  Once, flying through the air was incredibly risky, but airplanes have made it much less risky.  Getting food used to mean the possibility of getting trampled by large animals, but the grocery store has made that activity less risky.  Risk is relative.  What seems like a huge risk to some is a new adventure for others.  There is no escape.

What is “Risk?”

Merriam-Webster defines “risk” as follows:

Risk-  1: possibility of loss or injury : peril  2: someone or something that creates or suggests a hazard  3a : the chance of loss or the perils to the subject matter of an insurance contract; also : the degree of probability of such loss b : a person or thing that is a specified hazard to an insurer  c : an insurance hazard from a specified cause or source <war risk> 4: the chance that an investment (as a stock or commodity) will lose value

Risk is Everywhere

Risks are something we live with every day, but they are sometimes blown out of proportion when it comes to business, and especially with starting your own business.  Entrepreneurship has long been associated with risk by non-entrepreneurs.  I have lost everything before in business.  That’s because I risked everything.  After I had learned not to risk it all, I stopped losing everything in business when I failed to reach my desired level of success.  I found one of the best assessments of career risks in the book The Start-Up of You by Reid Hoffman and Ben Casnocha.  It is riskier to stay in the same place where you know bad things will happen compared to starting your own business.  Again, risk is everywhere.

Risk vs. Comfort Zone

People become so accustomed to doing the same thing over and over again that they create a “comfort zone. ” When they get into these ruts, they see their comfort zone and see anything outside of their comfort zone as “risky behavior.”  The sad news is that sometimes it is more expensive to stay where you are than to step out of your comfort zone and do something really cool.  It’s kind of the “I-could-have-been-a-contender” syndrome.  When people miss their “lucky break,” they tend to justify their surroundings, blame others, and slip into a learned helplessness pattern I call “I-could-have-been-a-contender” syndrome.  Risk gets a bad wrap, for all the wrong reasons.

Risk Management Defined (as it relates to your small business)

How often can you fail and do it again?  Think of it in terms of trading the financial markets.  If you invest 100% of your capital in one trade, you have about a 50/50 chance of having any money left.  You may have huge gains or lose everything.  If you invest 1% of your capital and you lose your position, you still have 99% left.  You’re not going to experience massive gains, but over time they will accumulate into the habit of winning.  The same thing is true with your business.  You’ve only got one farm.  If you bet it and lose, you’ll have no farm.

“The number of times I succeed is in direct proportion to the number of times I can fail and keep on trying.”  –Tom Hopkins

The Other Side of Risk Is Reward

If you keep looking over the edge of the high dive, you’ll never jump.  If you think of the thrill and exhilaration of falling through the air into a nice warm swimming pool below, you won’t hesitate to jump.  The reason that we take risks in business is for a perceived reward.  Without reward, risk is just taking risks for the sake of taking risks.  If you take intelligent risks and manage your exposure to risks your chances of getting rewarded increase dramatically.