Risk-taking is an integral part of entrepreneurship. Whether it’s launching a new product, or taking on capital or debt, every entrepreneur experiences the daunting challenge of taking risks without knowing the outcome. But how can we get better at risk-taking, and what are some practical strategies for managing risks while maintaining our competitive edge?
Understanding Risks in Business
We often overestimate downside possibilities and underestimate the upside potential. This can hinder our ability to accurately calculate the opportunity cost – the cost of not doing something. When we weigh the pros and cons of taking a risk, we must not only factor in the potential cost of taking a risk but also consider the potential cost of inaction. Sometimes, it could be more detrimental to the business if you don’t take the risk.
Growth Mindset
Risk-taking goes hand-in-hand with growth. We push beyond our known boundaries and venture into new territories when we take risks. Without risk, there can be no innovation, no growth, and no forward momentum. By embracing and actively pursuing risk-taking, we foster innovation and growth.
There is no growth without risk, no innovation without taking chances.
The creation of Netflix is a prime example of entrepreneurs taking risks. Co-founders Reed Hastings and Marc Randolph first disrupted the market with a DVD-by-mail service, challenging dominant players like Blockbuster. Later, they risked transitioning entirely to online streaming, a move fraught with uncertainty. Today, with over 200 million subscribers, Netflix stands as a testament to the transformative power of embracing entrepreneurial risk.
As entrepreneurs, we need to become familiar with taking calculated leaps, starting small, and gradually expanding our risk tolerance. It’s like immersing yourself in cold water: at first, it’s uncomfortable, but with practice, you adapt and can stay in longer, increasing your resilience and tolerance.
Embracing risk isn’t about recklessness but about strategic decision-making, considering both the potential rewards and the opportunity cost of not taking action. It’s about pushing boundaries, fostering growth, and continuously moving forward, even in the face of uncertainty. The COVID-19 pandemic presented unprecedented challenges, but it also offered opportunities for businesses that were willing to take risks and adapt rapidly. The World Economic Forum reported in 2021 that businesses that took risks to rapidly digitalize their operations during the COVID-19 pandemic saw an increase in market share and customer engagement.
One great example of this digitized shift is my investee Evelyn Chilomo Kaingu, CEO of Lupiya. To gain valuable insights from Evelyn herself, I highly recommend listening to her episode on Venture Forward. Prepare to be inspired by her story of resilience.
