How much risk can you take?

I listened with great interest to the Real Business debate at the Investec Entrepreneurs’ Summit last week, where the motion was “Too many British businesses are happy merely to survive, rather than take risks and grow”.

Whilst those against the motion – Better Capital’s Jon Moulton and Wonga founder Errol Damelin – just won the debate, I was amazed there was no mention of the subjective, very personal nature of individual risk tolerance amongst businesspeople and entrepreneurs. The assertion that businesses are prepared to take risk was accepted, but it was not discussed how much risk they personally are willing to take, how they assess it and whether there is a link between the level of risk and success.

Most entrepreneurs I know would not regard themselves as high risk-takers. Sure, they take risks all the time, but in their minds this is not roulette with a binary outcome; it’s a question of a range of outcomes. For the more successful ones, it’s an approach to mitigate downside risk where possible.

High risk does not necessarily equal high returns. What is essential is a high level of conviction and self-belief, particularly when everybody around you is saying that what you are trying to achieve is impossible. That means that decisions backed by a degree of emotion are necessary. In contrast to this, I have seen people try and fail where they refused to let the facts get in the way of their judgment. Make no mistake, the facts do matter.

Even if these entrepreneurs do not see themselves as taking risk, it became clear in the Entrepreneurs’ Summit “Management matters” panel that a majority of the audience felt that their team was under-performing, but only a minority were prepared to do anything about it. Was such inertia down to sheer laziness or, more likely, a concern over the risk of the outcome? 

I spoke to a number of delegates who were nervous about equity dilution from taking on finance for growth, and even the risk of taking on new staff. Fear of failure is still holding too many people back, although most recognise that failure often gives us the learning experiences we need to succeed.

Some time ago I heard Sir Philip Green, who had setbacks earlier in his career, say that when he bought BHS, others thought it was a high-risk deal – but his assessment of the risk was that it was not.

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