The Risk Advantage is a concept that I developed and wrote about in my book The Risk Advantage: Embracing the Entrepreneur’s Unexpected Edge. (River Grove Books, 2013, ISBN: 978-1-938-41644-6, $14.95, www.TheRiskAdvantage.com)
In my book, I address the idea that to achieve long-term success we are required to embrace risk.
The underlying reason that risk is important for success is competitive marketplaces and business environments demand a constant state of progress. Maintaining the status quo results in the company and its leadership being left behind and begins a slow process of decline.
My position clearly is the antithesis of the risk aversion philosophy of “if its not broke don’t fix it.” This is the first in a series of articles, which will address the idea that to achieve long-term success we are required to embrace risk.
Risk and Leadership in a Competitive Marketplace
Today's highly competitive marketplace requires that we continually move forward or face a downward spiral toward mediocrity.
As an entrepreneur and business leader the challenge to meet the competition and survive, demands we maintain the fundamental principles of an entrepreneur's mindset.
The entrepreneur, enthusiastic and idealistic, boldly faces the daunting task of creating a new business with a singular focus that sees nothing but opportunity. It is this mindset that frees one to explore boundless innovation and true creativity, the strength of entrepreneurship.
But as time progresses and we build our business an environment with layers of bureaucracy, formalities and risk aversion becomes a formidable obstacle in our quest for long-term success. Add to this our natural urge for self-preservation and the fear of change and maintenance of an entrepreneur’s mindset within a growing organization is a lot like moving mountains.
Yet, blending an entrepreneurial mindset into the framework of an established organization doesn’t mean being a radical, an outlier, or non-conformist. What it does mean is we no longer avoid risk, we maintain a “play to win” attitude, and continue to push ourselves and those we lead forward.
I attribute my success in business to the never-ending willingness to embrace risk, not just when I launched a business, but every day thereafter.
What I discovered was risk and opportunity were eternally connected and, in fact, soul mates. Every opportunity came with risk and the only way to keep my business moving forward, to meet the competitive challenge of a brutal marketplace, was to keep pursuing more opportunities.
Thus, risk was essential for success.
However, human nature prevents us from fully accepting the idea that risk is a positive force to be embraced. Risk is seen as a negative consequence to a decision made, so our natural tendency is to avoid those business decisions where uncertainty is present.
Avoid risk and therefore avoid failure thus we have achieved a zero sum advantage – no cost for avoiding risk.
The reality is that risk avoidance is the greatest impediment to progress, personally and professionally. We have been conditioned for self-preservation and as a result, we can easily justify the mitigation of risk with well-worn excuses, such as “I didn’t want to lose.” Yet this is hardly a zero sum game. Avoiding risk means passing on opportunity and that is costly.
Opportunity, like time, is perishable.
Miss an opportunity to move your new business forward due to risk avoidance and a competitive advantage could be lost. The cost could be an erosion of market share, revenue, profit, employee flight, or the decline of your business. And when any of those things happen, the very thing you were afraid of—the risk of losing—has become a self-fulfilled prophecy.
A second human trait that prevents us from forward progress is loss aversion, our tendency to prefer avoiding losses rather than looking for gains. In fact a study by Amos Tversky and Daniel Kahneman concluded we get twice as much joy from not losing as we do from winning. [Choices, values, and frames. Kahneman, Daniel; Tversky, Amos American Psychologist, Vol 39(4), Apr 1984, 341-350.]
That creates a “play NOT to lose” mentality where the objective is protection of one’s position rather than a desire to embrace risk for the sake of opportunity.
Loss aversion is easily demonstrated in the sports world by the team that changes their strategy once they get into the lead. Instead of continuing with the strategy that got them into the lead in the first place, they change, fearing the loss of the lead, and now are playing NOT to lose rather than playing to win.
Maintaining an entrepreneur’s mindset as our business grows and matures, requires the leadership that embraces change. The best way to promote entrepreneurial change within an organization is by leading with example. Some organizations require evolution rather than revolution, but when you can deliver success your employees do acknowledge its source.
It’s also important to understand that having an entrepreneur’s mindset does not mean we are unstructured or impulsive with our strategy.
An entrepreneur does instead of talking about doing, they have an “I want to win” attitude, and are willing to embrace risk for opportunity.
Wrapping Up and Moving Forward
By accepting risk as simply the cost of opportunity and maintaining a play to win attitude, the foundation for a new formula of leadership is formed and change can begin. In a later article I will outline my Framework for Success, which is key in helping you to comfortably embrace risk.
Additionally in subsequent articles I will cover how to recognize a risk aversion situation, and what you can do to comfortably embrace risk when your self-protective mind is telling you otherwise. My next installment will focus on the Essential Risks necessary for success, Decision and Change.
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