Why is risk taking important in small business?
The other day I polled the members of my Facebook group about risk taking in their small business. A resounding 80% of them said that they were risk-takers but took calculated risks (10% didn’t like taking risk and 10% were ‘go hard or go home’). It made me think why risk-taking is important in small business and what calculated risks look like.
Before I start, I want to clarify that this blog isn’t about legal, financial, strategic, operational, compliance, or reputational risk. These are specific types of risks. This article is about the process of taking calculated risks in small business, things to consider, and why it’s important as a small business owner.
Why is it important to take risks in small business?
Most often, I see small business owners taking risk when they are at a ‘growth edge’ and are about to do something new or expand. Without it, their business stays put and they can lose competitive advantage. Without it, they question what may have been.
Risk-taking is a step to growth. It shows confidence in your brand and your business. Risk-taking can act as a ‘shot across the bow’ to competitors. It can show customers that you’re dedicated to the progress and longevity of your business and will invest in a future relationship.
What happens when you don’t take risk as a small business owner?
I get it, change can be scary and taking risks gets a bad name – other than being risky. There’s comfort, surety and familiarity (and we know what’s said about the last one) in where we are and not taking risks. But what are the “risks” in not taking risks?
Stay where you are
By not taking risks you avoid opportunity and stay where you are. Now that doesn’t necessarily mean that you’ll never get to the same point you would have taking the risk, it generally means that it can take longer.
When taking risks involves trying something new, not taking them means that you don’t innovate. The joy of these risks is that they are often iterative; you take the risk, find that something needs to be changed, you innovate and perhaps take another risk.
Lose to competitors
For some business owners, the idea that their competitors will beat them to an innovation or new sector of the market is unbearable. For these business owners, they can become consumed by the ‘what ifs’ and ‘if only’ of what could have been theirs.
Steps to small business risk-taking
I have to be honest, sometimes I’m a seat of my pants/gut feeling kind of gal. But as you know, the majority of business owners interviewed said that they are calculated risk-takers. So, for those of us out there, I wanted to put together some key steps to taking calculated risks.
Know your drivers
Taking action out of the decision to act on risk comes from us having a clear understanding of what drives us and our business. It’s important to not only know our goals and how the risk will help us achieve or near them but also the fears and needs we may need to negotiate along the way.
Does it align with your values
I’ve said it before, values are our compass, they keep us true and when we fall out of line we have a feeling of dissonance. If you are clear on your personal and business values and how the risk, your feeling toward them, and the action needed to align with your values, then the decision can become crystal clear.
For example, one of my values is courage. Sometimes I’m unsure of taking a particular risk and it’s often through fear. However, when I act from my value of courage, fear disappears and action becomes simple.
Will it help you achieve or get closer to your goals
It seems odd to have to say this but in all honesty, we do get caught up in FOMO and wanting to be part of the crowd or jump on the latest thing. I liken it to buying something you didn’t need and will never use because it was on sale. Sure you saved money but you still wasted the money you did spend (and yes you could have wasted more but in all likelihood, the price helped you not buy it originally).
Unless the risk-taking will get you closer to your goal – so what?
Consider a SWOT analysis
Not heard of it? Think of it as an upmarket version of a pros & cons list. Except… you consider the:
of the risk-taking action to your business.
When I do this, I include financial and legal implications in the relevant sections. It’s important to include these as they form part of a calculated risk.
Finally, it’s a decision if you’re going to go through with it. No regrets! You’ve taken a calculated risk based on the best information you had on hand at the time.
I hope this has helped. The one place businesses get stuck is determining their drivers. If you need help with that, please email me. In the meantime, I’d love to hear about where a calculated risk has paid off for you and your business. (For me it was leaving my public sector career to set up this business)