Sometimes, the only way to get ahead in business is to take risks. In fact, you’ll find that many of the most successful businesses earned their success by taking risks. But those risks need to be calculated, which means careful planning before jumping in headfirst. It’s all about taking the right risks at the right time.
In this article, we’ll explain how to put your strategic thinking into action to take calculated risks in business. We’ll also give you some of our top tips when it comes to taking risks, helping you to develop the self-confidence you need to take a risk when needed.
What Is Meant By Risk Taking In Business?
Taking a risk in business means that you are actively choosing to take an action that has the potential to either benefit or harm your business. The harm that could be encountered could be financial or reputational.
However, taking a risk in business is not the same as taking a chance. A business risk should be taken carefully, with plenty of planning and strategic thinking beforehand, ensuring that the risk is worth taking.
For many businesses, calculated risk taking is part of the growth strategy of the business, enabling the company to launch new products and services and to become more innovative. In fact, you’ll find that most innovation has come from calculated risks.
Why Is Taking Risks Important In A Business?
Deciding to take a risk might seem, well, risky. But it’s important to remember that there can be many benefits of taking a risk in business. Before deciding to jump in and take a risk, it’s essential that you weigh up both the pros and cons of the risk, and fully understand the potential consequences of your decision.
If risks never paid off, businesses wouldn’t take them, so it’s clear that there are many advantages that can come with taking a risk. Let’s take a look at some of the benefits of risk taking in business.
1. Innovation Comes With Risk
If you want your business to be at the forefront of its industry, you need to be innovative. Unfortunately, innovation comes with an inherent risk. Whenever you’re the first business to try out a new idea, there’s a chance that you might fail. However, there’s also the chance that you might succeed and become an industry leader thanks to your innovation. It’s all about weighing up the risk and deciding whether it’s worth taking the chance.
2. Secure A Competitive Advantage
The majority of businesses actively avoid risk, preferring to stay within their comfort zone and ensure that their business does not suffer any loss. If you’re willing to take risks, you can gain a competitive advantage over these businesses by offering fresh ideas and bold innovations to the market.
3. A Learning Opportunity
Every day is a learning day in business, and you’ll find that you learn the most by taking risks. It’s important to remember that every risk provides a chance for failure, but it’s by making these mistakes that we learn lessons and grow. When a risk doesn’t pay off, use it as a learning opportunity to feed into your business strategy moving forwards.
4. You’ll Never Know If You Never Try
When you take a risk in business, there’s no guarantee that it will pay off. But if you don’t take the plunge, you’ll always be left wondering what would have happened. Sometimes it can be difficult to move forwards with your business if you don’t take risks, and at least you won’t be left wondering ‘what if’.
5. Risk Is The Cost Of Opportunity
When it comes to business, risk is often the cost of opportunity. When an opportunity arises, it rarely comes without an element of risk. It’s all about weighing up that risk against the potential opportunity and deciding whether it’s worth taking. After all, whatever industry you’re in, the market is continuously shifting amid changing trends and it’s essential that your business keeps up if you want to be successful.
Types Of Risk
There are many different types of risk in business, and understanding the different types that exist can help you to identify where the risks lie and how you can take action to mitigate or reduce them.
It’s important to note that certain actions may have more than one different type of risk associated with them, so you’ll need to carefully consider every potential risk before deciding whether to go ahead with your plans.
Let’s take a look at some of the different types of risk that exist in business.
Every business has competitors – those businesses who offer similar products or services to yourself. When we talk about competitive risk, we’re talking about the risk posed by competing companies. So that’s other businesses that are aiming to meet the same consumer needs as your company.
A compliance risk occurs when a process or policy may be breached. This could result in financial penalties or damage to your company’s reputation. Examples of compliance risks include GDPR breaches, health and safety risks, environmental concerns and ethical issues.
If a risk involves money, it is known as a financial risk. For example, if a company decides to invest money in launching a new product without testing demand, this could result in financial loss. Alternatively, if a business takes out a loan but later cannot afford repayments, the company will be at risk of default.
Any type of risk that affects people, whether they’re internal employees, external contractors or the end consumer, is a human risk. For example, this could include employee dissatisfaction, conflict or performance issues.
If a problem could lead to legal issues, it is known as a legal risk. This type of risk threatens the company’s ability to comply with regulations or legislation, which could lead to penalties or affect the reputation of the business. For example, there may be legal risks involved if a company is unable to fulfil its contractual obligations.
A risk that could impact the way in which an organisation operates is known as an operational risk. For example, if there is a salmonella outbreak in the office canteen and several members of staff are infected, this could pose an operational risk as the business would not be able to operate effectively.
If a risk threatens your business’ physical buildings, equipment or other assets, this is known as a physical risk. The most common example of a physical risk is a natural disaster which may damage your property or other business assets, impacting your ability to trade effectively.
Every business needs a reputation in order to gain and retain customers. Anything that puts this reputation at risk is known as a reputational risk. This is often thought of as one of the most serious types of risk, as reputation is essential to maintaining the trust of stakeholders. A reputation can take many years to build but only a moment to destroy, so it’s important to avoid reputational risk wherever possible.
Security is essential for every organisation, and this applies to both physical security and digital security. One of the biggest risks in the modern world is a cybersecurity attack, where hackers attempt to sabotage or gain access to the internal network.
Finally, every business is vulnerable to strategic risk, which is the risk of an internal or external factor impacting a company’s ability to achieve its strategic goals. This may lead to a forced change in strategic direction. A strategic risk may include a change in industry trend, meaning that a planned product development is no longer viable.
8 Steps To Effective Risk Taking
So, how do you take risks in business? You need to understand how to effectively assess a risk and decide whether it’s the right step for your business, before you take the plunge. But it doesn’t end there. You also need to have the confidence to go ahead with your calculated risk, as well as knowing when to back off and reassess.
We’ve put together the eight most important steps that you need to follow in order to take practical risks in your business.
1. Think It Through
Before you decide whether to take a risk, it’s essential that you carefully weigh up both the pros and cons of taking the risk. Consider the potential benefits that you stand to gain if the risk pays off, as well as the potential losses if the risk backfires. It’s only by comparing these pros and cons that you can decide whether the risk is worth taking.
2. Know What You’re Willing To Lose
When you’re taking a risk, it goes without saying that there’s a chance you might lose. Before you decide to take a risk, you’ll need to understand exactly what you can afford to lose. If you can’t afford the loss, you’ll need to carefully consider whether you’re willing to take the risk.
3. Seek Advice
The first time you take a risk in your business, it can feel daunting. To set your mind at ease, seek advice from others who are more experienced in business and have taken risks in the past. They will be able to talk you through their process for weighing up the risk, as well as explaining how they overcame their fear and found the confidence to take the plunge.
4. Accept The Potential For Loss
With any risk, there is a potential for loss – otherwise it wouldn’t be a risk. If you’ve decided after weighing up the pros and cons that it is a risk worth taking, you’ll need to accept the potential for loss and work on moving past the fear of failure. This means letting go of any anxiety and focussing your mind on the potential successes that could result from taking the risk.
5. Put Mitigations In Place
Although you need to move past the fear of failure, this doesn’t mean that you should forget about potential losses completely. In fact, it’s important that you put measures in place to minimise the losses that you might incur if the risk doesn’t pay off. You’ll need to identify all potential losses that could occur and think of ways to reduce the impact on your business. This can also help to reduce any anxiety that you might have about taking the risk, as you are taking control of the situation.
6. Set SMART Goals
As with anything, it’s important to set realistic goals to achieve along the way. Depending on the risk that you’re thinking about taking, you may be able to work towards it in small stages, taking incremental risks along the way. This means that you will be able to back out at any stage, if it starts going wrong or the risk becomes too much. Don’t forget – any goal you set should be SMART (Specific, Measurable, Achievable, Relevant and Time bound).
7. Take Control
Once you’ve carefully calculated your risk and ensured that you have measures in place to mitigate or reduce any potential losses, it’s time to take the plunge. For this final stage, you’ll need to have confidence in yourself, as well as the process that you’ve followed.
8. Evaluate Your Process
Whether or not your risk paid off, it’s essential that you reflect on the process that you followed and understand exactly what went well and what didn’t go so well. You can then learn from any mistakes that were made and improve your process for the future. This will enable you to take better risks going forward, increasing your chances of success.
Most successful businesses have earned their success by taking risks from time to time. However, it’s important to note that this does not mean simply taking a chance and hoping it pays off. The most successful risks are carefully calculated, with the pros and cons weighed up thoroughly before any decisions are made.
It’s only by taking risks that your business can become an innovator in your field, leading the way in your industry.
By exercising caution and following the right process, you can begin to take risks that put your business ahead and earn you success for many years to come.