Being the first with something new means by definition to take a risk. Will it work? Will it be accepted? Will it hit big? Will there be a payback on the investment?
Never daring to take these risks, means always moving within well-known and already-explored areas and thus slipping in the competition. This applies irrespective of which area one works; in research, business, medicine, agriculture, societal transformation.
Julius Caesar could not have taken control of the Roman Empire if he in 49 AD had not decided to cross the Rubicon river and march to Rome with his army. The discovery of America had had to wait if Christopher Columbus in 1492 had not dared to sail unknown waters to find a new maritime road to India. Man had not landed on the moon if John F Kennedy had not had a vision and dared to invest both his prestige and the necessary resources.
Starting a business often requires a very large measure of risk taking and no company can survive and grow without a long range of decisions that all imply risks. Nevertheless, risk taking is not something that comes naturally to us. On the contrary, most people have a strong inherent aversion against taking risks. Taking a risk means losing control over the future. We do not want that. Instead, we want to be safe by knowing what’s going to happen in a week, a month, a year…
We want to know what the weather will be like. We want to know how the stock market will evolve. We want to know if the competitor is going to hit. And we definitely want to know if that angry bull will turn around and set after us as we enter the meadow? Feeling that you have a grip on the future, often gives a calm and internal sense of safety and reassuarance, while the uncertainty about what is going to happen and the risk of failure instead can be deeply distressing (unless we belong to the minority living for the adrenaline kicks).
Risk-taking is therefore necessary for survival and growth, but risk-taking can also mean the end. Had there not been a danger of taking risks, there would have been no drama in it. It is therefore important to be smart when taking risks. The better you know yourself and the outside world, the better you are predicting the future, and the more you can calculate the risk, the greater the likelihood that it will be a successful conclusion.
It is also important to always have a plan B. Before the launch of Windows 98, Microsoft had hundreds of different detailed scenarios to fall back on unless something went wrong.
It is important that risk-taking is built into the organisation, i.e. that there is room to invest in the more crazy projects and to have the opportunity to test many of the creative ideas that come from the employees.
However, you should only exceptionally risk more than you can afford to lose. The American investment bank Lehman Brothers took too many and excessive risks in relation to its capital, which led to the world’s biggest bankruptcy in 2008 after the collapse of the US housing mortgages market. Had the bank not taken these big risks, perhaps the subsequent global financial crisis could have been prevented or at least significantly mitigated.
It is therefore a good idea to spread the risks and, for example, never bet more than 10% of the development budget on a single risky new project. The better overview you have on the innovation budget and the clearer the principles are for how much risk you are willing to take, the less anxiety for the risk taking you will have. In addition, the more ideas you have in the company, the less dependent you are on any single idea.
This blog post has been inspired by:
Sloane Paul (2006). The leaders guide to lateral thinking skills. London: Kogan Page.