Startups involve risk – there is no way around it. Across the United States, only one in ten new ventures will succeed. Those are not good odds, but those are not the odds an entrepreneur needs to face. It isn’t just about risk… it is about managing risk. Leaders must know when to go for it and when not to. If risk is managed well, the “one in ten” game can be dramatically improved.
Entrepreneurs must secure relevant and good intelligence. They need to interpret it well and apply it to their specific situation and/or company, and then they need to act on it.
Too much risk happens when there is not enough data and leaders make a wild guess on big business decisions. Make sure decisions involve calculated risk and not the great unknown.
Too little risk happens when leaders live in the data and they get stuck in “analysis paralysis.” Here, no decisions get made, and what may have seemed like a safety net can actually be very dangerous.
The Poker Analogy:
Poker isn’t about the cards. It is about playing the cards in your hand and the opponents at your table. Entrepreneurship has some of the same. In poker it is a risk every time you bet, but you can’t win without betting.
The better your hand – and the better your interpretation of your hand verses the competition – the more you bet. Entrepreneurs need to do everything they can to get the information and assets to analyze their situation, and the stronger their position the more risk they should take.
While many people look at starting a company as one giant risk, it doesn’t have to be that way. Break down the strategic and tactical mission into as many segments as possible. Get data and intelligence on each, evaluate each and make decisions on each.
Of course an entrepreneur always has to keep the big picture in mind, and ensure all the little decisions lead effectively and efficiently towards the overall vision, but this segmentation strategy will mitigate risk. Entrepreneurs can be wrong a few times on individual segments but still get the overall vision correct.
It is almost always easier to evaluate data and make a correct decision in a smaller environment and shorter time frame. Add enough of these “segment battles” up and the war will be won!
As a wise man once said: “You gotta know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run.”
Entrepreneurs are often romanticized as intellectual gamblers. Whether you adhere to that or not, make sure you never bet wildly – or risk wildly – just as the best poker players never do. Calculate and act on a scale appropriate to your situation. When your stars align, THAT is the time to take your big risk and knock your competition out.