Seeing Risk Through the Right Lens

When analyzing risks, it is most beneficial to spend a lot of time understanding the possible reward opportunities which come with particular risks. Therefore, we spend a significant amount of time modeling best and worst case scenarios.

One common mistake many entrepreneurs make is to rely primarily on a gut feeling. That is a problem I have had to work on throughout my career. A strong sense of optimism is a common characteristic amongst most entrepreneurs. They so much want and expect their business ventures to work out that many times, they dont want anyone to rain on their optimistic parade. I remember a highly accomplished entrepreneur once told me, I never saw a projection I didnt like.

However, an honest and thorough calculation of risk is essential in any business venture. One hundred percent of new businesses (or business ventures within existing companies) expect success, or they wouldnt be initiated. And yet, 90% of all businesses fail. Those statistics tell me that far too many business people enter businesses wearing rose-colored glasses . Those statistics show that 9 out of every 10 business owners did not fully understand or perhaps did not even think about the risks involved before commencing. Smart Strategies for Staying Sharp

One way to keep the edge in any industry is to spend a lot of time playing devil s advocate. We pay our leadership team to think about why a venture or initiative will fail. I believe it is prudent to spend 75% of your time trying to figure out how it wont work and only 25% of your time on how it will work.

The more people you ask the better. And as always, dont be afraid to ask the potential consumers of that product or service. Talk to your employees , and they will gladly offer their opinion. Also, certainly assess risks with your CPA and business advisors.