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Leadership Thought #281 – Risk Is an Inherent Part of Business

January 10, 2012

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I am beginning to get a little worried that the past five years has made many business owners a bit “gun shy” about taking risks.  Risk taking is an essential part of business.   Without it we would be confined to the comfort zone of “low hanging fruit” and incremental change.  Instead of redefining market boundaries, pushing innovation and challenging the status quo, our leaders are in danger of becoming content with making reactive decisions based on their current business limitations and/or past misfortunes.  Markets, companies, communities, and people don’t effectively grow this way.

I am not saying all change is good or that some risk taking is unwise.  Many organizations lay on the scrap heap of business history due to the impulsive nature of their leaders.   There is a point where the risk-reward tradeoff isn’t worth it or when unknown and/or potentially hazardous variables trump the need for change.   Leadership will always require a certain sense of intellectual and emotional maturity.  Informed, well thought out decision-making is always preferable to “knee jerk” conclusions.  All good leaders know this and take the responsibility seriously.  They do their best to protect the interests of their stakeholders, e.g., employees, clients, investors, etc.

Being wise and responsible does not mean avoiding risk altogether.  In fact, it requires embracing risk, the right risks at the right time with the required investment in resources.   As the saying goes,”…To the victor belongs the spoils,” and victory by its very nature requires courage.  The objective of any business entity should be to grow its economic value.  To do this, companies must push their top and bottom-line performance, seize market opportunities, and fortify their competitive positioning.  All of this requires investment and investing always entails some level of risk.

Our economic recovery is well underway.  A few brave leadership souls are already beginning to realize this and switching to a more proactive, risk-reward mindset.  Over the next few months and years, completely new markets will open. Some companies will redefine their existing markets; new products and service innovations will be introduced; conventional business models will be challenged, and new market entrants and substitute products will arrive unexpectedly. Continued technological innovation will reinvent what we believe to be possible; consumer demand/expectations will shift to match changing demographic realities, and capital formation strategies will follow their unending path of chaos and creativity.

Leaders who are successful define and create the future.  Don’t let unnecessary risk aversion stifle your potential for accomplishment.  Be prudent but also be brave (or someone else will in your market space).

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