Your Risk Tolerance Scale

Business Brain, episode 562 for Casual Friday, June 28th National Food Truck Day 2024. Greetings, folks, and welcome to Business Brain, the show where we take an idea or for and analyze it. We identify it, we poke holes at it, we look at it, we spin it around, we use it to tune our business brains every single time we get together. Our sponsor for this episode is fastmail.com businessbrain. That's where you can go to try it free for 30 days and then you save 10% off your first year. We'll talk more in depth about fast Mail, which is my favorite email provider that I've been using for five years. In a little bit. For now, here in Durham, New Hampshire, I'm Dave Hamilton.

And out here in Northern California, I'm Shannon Jean. Happy Friday.

Happy Friday. It's Food Truck Day. So I was reminded of a thing that's sort of been happening in our town. We have this new food truck pod. It's a brew, pub, brewery or taphouse. It's a taphouse and food truck pod. There's like six to 10 food trucks there all the time. It's really fascinating and it's been fantastic. It's become like the meeting place in town and it's great. They are doing fine. This is not about them, what I'm about to talk about here. So.

Okay.

But it reminded me of them because we all know that bad reviews on social media are undesirable, right?

They are.

I mean, you know, and very much so.

There's.

We've talked about it, We've done episodes on it. There's different ways to handle them, all of that. But one thing that I would think would be an odd choice to make would be essentially create your own bad reviews.

I would, I would agree with that statement.

There is another restaurateur in town who, I don't know if they realize this, but that is exactly what they are doing. They are constantly complaining about how not enough people go to their restaurants, how other restaurants are taking their business away. And, you know, you need. And then shaming people for, well, you need to eat local. You should stay in our town and eat. And you know, their restaurant is downtown. This food truck thing is like just on the outskirts of downtown. They're like, that place is taking away business. It's like, no, I had stopped going to your place before. That other food truck place was even like an idea that I knew about.

But yeah, even if you feel that way, posting it or social media, not.

The best thing, just don't and it's fat. And I've, I've tried. I know the people that, that I know. This restaurateur, our kids, you know, kind of grew up together.

Ish.

And, and I've tried having this conversation with them and there's. They, they don't hear it. Everything is. It's that. It's, you know, it. There's a boogeyman. Right. And it's like, no, you're your own boogeyman.

Yeah. Yeah. And, and I. That's the kind of thing you have a conversation like in a peer group, like if you're at the chamber of commerce or you have a other group of business people and you're frustrate. You share those frustrations, like they're taking all my business, of course. And then you, and then you listen when they say, hey, dude, actually make. We. I would make these changes to try to get some of that business back or something, you know, but collaborating with other people in your industry can really help be a resource for you. Right? Yeah, yeah. And, and, but you do have to. I mean, we all have those kind of complaints. It's just. There's no getting around it. But doing it publicly, it's also the same as responding to a negative review online. And you're, you're calling somebody out or doing. Sent. You know that, that doesn't work.

Be careful.

Actually does the opposite. Opposite. Yeah. You want to be very positive, talk about how much you value people, this kind of thing.

But I'm sorry you had that experience. Please let us make it up to you. Right?

Here's the changes that we've done to implement. Even if it made you angry and you think the customer's nuts or whatever, that's normal. That's just normal.

Just don't say it. Yeah, and they did, like in this, they called out. Right, right. But in this, in this post, the most recent one, and this is like very typical. It was like, you know, you can. Whenever we have a bad review, it's always made up to those people, but they never come back and post more. And the people that have great experiences at our place never post anything good. It's like, that's the wrong look.

That's the. Yeah. So what do you do to encourage positive reviews? You know, that.

Give people a five dollar coupon, whatever.

Got it? You got it. Please come back. You know, show us and incentivize them. Offer discounts, you know, people. Yeah, yeah.

Don't. Don't got to be your own boogeyman.

Yeah, no, no. You need a safe space.

Yes, yes. Vent all you need to, but not to your potential customers.

Yeah, and I would say don't do it around your employees either, because that impacts the way they look at your customers, which in turn impacts the way they interact, the way they treat them, the service that they offer. You want to hold your customers in high regard. It's not that the customer's always right. No, not saying that. But in general, a positive viewpoint of the people that are paying your bills. That's the way to go.

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I need some business business therapy days. All right, so, okay, so I have my coaching business and I'm talking to more and more people. And one of the things that comes up all the time is risk. Risk tolerance. How much risk should I take? How much risk? And. And the way it usually comes up is, oh, I've read all your stuff or read a bunch of stuff, and it seems like you take risks all the time. And. And it kind of set me back a bit because I feel responsible, you know, for, obviously for the advice I give these clients. So I want to have a discussion and talk about, like, what are acceptable. And maybe we. I don't know that we can narrow it down, because maybe it's different for everybody, but. But I would love to have, like, a grading scale of acceptable risks at. Based on a couple things. It's not just age. It's also the cycle of your life that you're in. Yeah, right.

I would say it's more the cycle of your life than your age. Yep.

Yeah. Yeah. And, you know, I have taken a lot of risk, but at some point, I stopped taking wipeout risk. Right. So that's like the high. Let's start there.

Okay.

That's the highest. Highest level of risk, meaning that if. If you do some deal and that deal went sideways, you're done. You're. The only way out is to, like, declare bankruptcy or something like that, which sounds horrific to me. Yeah.

I know people who have done that and wildly succeeded, by the way, because they learned that what they thought was wipeout risk is not. Like, I equate that. And this has been true for me with every amount of risks that I've taken. But I'm going to talk about it on the pain scale, you know, you have that one to ten pain scale.

Yeah.

I used to fill out things like eights or nines or whatever, because, you know, you. You think you know where 10 is. And then, I don't know, five or six years ago, I fell on the ice. Long story short, a doctor that was treating me actually wound up hurting me more than they were treating me and bruised my diaphragm.

Ooh, Shannon, that sounds bad.

I had to cough. Like, just sitting on my couch, I had to cough or sneeze. I think it was cough. And I knew that my body was either going to pass out or I was going to vomit. And I wasn't going to get a choice in this, but this is what was going to happen to me when I coughed because of how much this hurt. It turns out. No, it's fine. It turns out neither of those things happened. I made it through. And what that told me in that moment, my pain scale completely reoriented. I still don't know where 10 is. But I also know that anything that I had put in the past as like 7, 8 or 9 was also incorrect. Those were all fours.

That's a good point.

And now I even treat pain differently. Like, that moment changed my brain. And the same thing has happened with Risk is I would go ahead.

Sorry, yeah, I would agree. No, I mean, I made a million dollar mistake. I've talked about it here on the show a bunch of times and I've learned a ton. At the time when I was going through it, I didn't know how I was going to recover from it, but I was determined to recover. So I understand that concept. And it's like this scale of 1 to 10 is the same with risk. Right.

And that's what I'm saying. And I think you need to recalibrate it regularly.

Okay. So I like that. I mean, if it happens, something happens, you're going to, you'll figure it out, you're going to get through it. Right? Because I would argue that. And my good friend who was, was my attorney at the time, he had always told me I had a lot of success early on, and he said, hey, just watch out, because I don't know a single wealthy person that has not lost it and made, you know, made some big, big mistake. And I would agree. And I, I've been there. But what do you tell somebody that's like, and this is how I've handled it, I always push back and say, your risk tolerance, I can't tell you what that is. Right. Because I don't know your specific situation. But if we have a person that's like, let's say in their early 30s and they have a young family and they've left their corporate job and they've got some money and they've invested it to either start a business or they want to buy a business. Like, I, I mean, I had a client that, you know, was leaning in hard to buy this business that I thought was horrible and wasn't worth half of what they were going to pay for it. And I was like, you know, maybe this discussion is more about your responsibility as an advisor than you're teaching someone's risk tolerance. Because I don't know how to separate out when they're asking my advice, even though I'm telling them that's nuts. But what if I, you know, I'm telling them, yeah, it looks pretty good. Da, da, da, da. You know, we've looked at the numbers you're responsible.

You're interjecting at some level. Yes.

At some level you're bringing risk into their life. Right?

Yes.

You're advising.

Yeah. You're supporting a decision. Yes, yes, yes, that's right. So, yep.

What I, I'm going to develop this, I would like, I'm going to have a test that I can give someone that says answer these questions. And you've seen it before, this kind of response. You, you're answering these questions. This is going to tell me what your risk tolerance based on that. If your risk tolerance is a five, let's say, and you bring a deal to me and you want me to analyze it for you, I'm going to base it based on this risk tolerance. It doesn't mean that I wouldn't do it. Right, but you don't have a risk tolerance of eight. You've got a five.

Yeah.

This is not a five. This deal is not a five. I don't know, maybe that you're figuring.

What you're doing to mix all these metaphors here, you're figuring out where they're 10. If it's 1 to 10 scale, you're figuring out where 10 currently is. Their 10 for them as it relates to your, your scale. Right.

Because that way your scale is different.

I guarantee you, we both know people who's, who would look at your scale and say, okay, this guy's 10 is a six for me.

Those are rookie, those are rookie numbers. Or three.

Yeah, exactly. Right. And that's okay. Right. But. Yes, but now at least you framed it. And I think if, if I were in your shoes as the coach, I would tell them where their risk, where their 10 is versus your 10 and make it clear that your 10 is not some billionaires 10 or whatever, you know, whatever. Right. It doesn't matter.

Whatever.

Yeah, well, I, at least it lets you make decisions.

Yes, I'm going to, I'm talking to sue, which is great. And this is just what business therapy is because good therapists say, well, what, what think about that. What do you think Feel about that. That's right. And then you pay them. But so if I develop this, you know, whatever, 10 questions or five question thing that basically I'm sure I could have AI help me do this.

I assume you will.

Yes. Answer these questions and that we're going to come up with your what's your risk? What's the scale that you use? What's risky according to you, Then I can use that as a gauge when they're asking Me to advise them on specific scenarios.

Does that make sense? It does. And I would say, as a. As the. As the coach here, give them the test again every. Certainly every year.

Yeah. Oh, yeah, Right.

Because things are going to change as you build confidence. Yes. Just like with my. Just like with my pain, where my scale recalibrated. I remember a moment where my risk scale recalibrated. We needed. And I know I've told this story to you before, and I'm pretty sure it's been here on this show. We joined comscore. So this is my comscore gamble. And it failed. It absolutely failed. Comscore. At the time, we weren't doing podcasts. We were only doing web ads or we were doing some podcasts. But the majority of our business was. Was, you know, display ads on the web. And comscore was like, well, all the big buyers use us as their, you know, their clearinghouse. They're like Nielsen, but for web ads.

Okay.

And so if you're not listed with us, there's people that won't even talk to you. I was like, crap.

Got it.

And they're like. I was like, okay, well, how do I get registered with you? Blah, blah, blah, blah, blah. Wouldn't you want me registered with you anyway so that you can sell this data to them? They're like, yes, we do want you registered. It costs $35,000 a year to do this. And you pay it all up front, right?

Of course you do. Yeah.

And I was like, okay, okay, crap. And I was like, fine, let's do it. And So I committed 30. I looked at it, and I was like, you know, at the time, that was like a base salary for a salesperson. Of course, salespeople, most of their income comes from commissions.

Yeah.

So I was like, all right, so I'm giving up the base. I framed it in a way that made sense to me. I know what costs $35,000. It's a base salary of a salesperson. Okay, great. Okay. Can I. Can. Is this smart for the business to pay for that versus paying a base salary of another salesperson? Is this going to pay off for us? I did all the, you know, I. Pros and cons. I swatted it. Right. And. And I decided, yes. I decided wrong. It. For our business. It did not pay off, but we survived. Like, that was.

Yeah. Yes.

I needed to know. This is something we'd been hemming and hawing on for years, and I needed to know. And there were two really interesting things that came out of that the first was that night my kids were in, like, elementary school, and I was having that moment that a lot of parents had about how the f are we going to pay for college? And that night, I realized, we're going to figure it out. Just like I'm going to figure out how to pay for this comscore thing. I'm going to figure out college. And I did not worry about college from that day forward, and my kids are now finished with college. Most awesome, let's say.

Yeah, yeah.

But, like, that was the day, and I didn't make that decision in order to free my mind of this college concern. But it worked.

No.

You know, and the other thing that I learned, and it was a thing that I know I've said on this show before because I'm a big Rush fan and I like to quote Rush songs, was what I call the complacency risk, which is also the free will risk, because it quotes Rush's song Free Will, which is if you choose not to decide, you still have made a choice. Meaning for those two years prior that I had not chosen comScore. It wasn't that I had deferred the decision. It was that I had chosen not to do it.

That was the inaction in action.

Is the action correct? So beware of the complacency risk, too.

Yeah. Yeah, that's great. Well, that's good. I appreciate everyone listening to me and you talking through it, because now I think I have a sense of how to present this in a. In an authentic way. That's what I'm trying to do. I'm always focused, like, hey, I want to add value, and I don't want to tell you to do something. I want to give you the information, and you can decide based on certain guardrails, if you will, when it comes to risk. And so I think if I can work on this and develop this short, you know, poll or survey, if they, if you will, where they can answer these questions, then I can give it back to them and say, right now, to me, it looked. It looks like to me, you have a risk. You know, you're on the risk scale and 8. So maybe. And then we could look at actions that you take and deals that you buy and. And risks, because all of it comes with risk. Whether you're hiring new people, paying commscore to 35 bucks every day.

35,000.

35,000. Not 35 bucks. It would have been a big, very big risk at 35. But, yeah, all of it comes with risk. And so assessing and understanding your risk tolerance is really important because.

Well, and I think you as a coach will, using this framework, you'll be able to be not just authentic, but fully transparent. You won't be telling people what you would do if you were in their shoes.

Correct. That's what I'm trying to get away from.

You'd be telling people you are in your shoes. And here's what we have defined. Here's what we know about your shoes. And therefore someone in your shoes would A, not choose or B, choose to make this decision.

And I think I'll assign actual, like, alter egos to each of the levels. Like, maybe level 10 is a pirate and say, hey, dude, you're a pirate. You can do whatever you want. But if I like. And level one will be something, you know, maybe it's an Amish person or something. I don't know, Whatever. Not. I have nothing against Amish people.

You got nothing against pirates? It's fine.

Yeah, yeah. Some sort of scale, actually, I guess I do, but. Well, you know, pirates. But yes, pirates people. But anyway, so that's great. I would love your feedback. Feedback at BusinessBrain Show. If you want to give me some advice that. That will help make my advisory business better, I'd love to hear it.

Absolutely.

Yeah.

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