Taking Risks the Smart Way

One of the requirements for you to succeed greatly in life is you're going to have to move out of your comfort zone. You're going to have to take risks where there's a great possibility of failure, at least in the short term. Now I want to talk about what we call taking smart risks. It's taking risks that are necessary but will not kill you if they don't work out. Whenever you engage in any action where the outcome is uncertain for any reason, even crossing the street, you're taking a risk. You take a risk whenever you venture into the unknown, where your possibilities and probabilities cannot be determined to an exact degree. From the time you get up in the morning until you go to bed at night, and even while you're sleeping, you're facing risk to some degree. The issue then is not whether or not you take risks. The issue is how skillful you are and therefore how confident you are in taking the right risks for the right reasons, in pursuit of the right goals or objectives. The better you become at analyzing and assessing risk, as all top people are, and then avoiding as much of the risk as possible, as all successful people do. The more competent and more capable you will become, the more risks you'll be willing to take because they're smart and the more successful you will be. Now, there are basically five types of risk for you to consider. The first type is the simplest. It is the risk that is not yours to take. It's the decision that you do not have to make, or the gamble that you do not have to engage in. Every action has a consequence and it often creates the need for further actions either to follow up on or to remedy what happened. Whenever you can delegate an act entailing uncertainty, you can reduce your risk of losing time and money and increase your likelihood of long term success. Remember, there are certain risks that are not yours to take, so don't take them. The second type of risk is the risk that is unnecessary. You engage in an unnecessary risk when you act precipitously without sufficient information, or without taking time to think it through carefully in advance. Many of the mistakes that you have made, and me for that matter, have occurred because you acted without thinking. That is, you acted without taking the time to minimize the risks involved. It's been said that you should invest as much time examining or exploring an investment as you spent earning the money to make the investment. You should do your due diligence. You should talk to experts in the field. You should get as much information as possible before you make an irrevocable decision. The third type of risk is the risk that you can afford to take. Calling on a new prospect, following up on a lead, and exploring a new opportunity all are risks that you can afford to take. In these cases, the cost of failure is very low, while the rewards of success can be very great. Even putting together a detailed proposal for a prospective big sale is a risk in terms of investing time and effort. But you can afford to take that risk, because what are you going to be doing otherwise? Watching television? It's worth taking because of the upside, and there's no real downside. The fourth type of risk is the risk that you cannot afford to take. The consequences of making a mistake would be too enormous. You cannot afford to bet your whole company or your whole bankroll on speculation of any kind. You cannot afford to commit all your resources to a single project and have your entire success or failure hinge on the outcome of that project. I've seen many small companies that will spend a fortune on a big advertising campaign believing in what we call the fallacy of big numbers. That if I advertise massively, I'm bound to get several hundred or several thousand new customers. But very often it happens that you don't get any at all and the company runs out of cash and goes broke. There are risks that you cannot afford to take. The fifth type of risk is the risk that you can't afford not to take. The downside may be costly, but the upside is so exciting that that it's very much worth taking a chance to go after it. If you're working on a big prospect whose headquarters are a long way from your main office, it's certainly a risk to travel all the way there and back several times, but it's a risk you can't afford not to take. If the prospect or the business materializes, it can make a major difference to both you and your company. Remember, your ability to confidently take calculated risks in the direction of your goals will ultimately lead you towards success. So before you take a risk, always ask yourself the worst possible option question. What's the worst thing that can possibly happen if this risk doesn't work out? If you cannot afford the worst possible thing that could happen, don't do it in the first place.