The prevailing wisdom is that to make it big, you must emulate those who have achieved what you hope to achieve. Those who have been there and done that. They’ve walked a mile in those moccasins and know a thing or two about the pains and pitfalls to avoid as well as the options and opportunities to seek.
In the world of sports, athletes look for advice about training, diet, exercise and perseverance from Olympic medalists and those at the top of their sport. In basketball, aspiring players emulate LeBron James or Michael Jordan. In golf, they take their cues from Tiger Wood or Jack Nichlaus. In tennis, they look to Roger Federer or Serena Williams.
In the world of science, engineers and scientists look to follow in the footsteps of those who have won a Nobel Prize, Turing Award, Copley Medal, or Kyoto Prize. People like Stephen Hawking, Albert Einstein, Timothy Berners-Lee or Jane Goodall.
And, in the world of business, the measure of success requires no award or medal. It is easy to assess. Success is gauged by the mountain of money produced. Those who reach the top are billionaires who created global companies from scratch. Unlike the children of old money who grew up with a silver spoon in their mouths and inherited massive wealth, it’s the self-made billionaires who know what it’s like to mine for business capital (Sheldon Adelson), control expenses like a miser (Jeff Bezos) and constantly have a target on his back (Elon Musk). They scratched and clawed their way up the crag and summited Mount Billionaire. Therefore, it makes sense to look to the chief business alpinists and mountaineers for best practices, advice and insights on how to erect a business empire. They all have different tips and words of wisdom. But there is one piece of advice that they all seem to agree on: Big reward requires big risk.
Go Big or Go Home
“The biggest risk is not taking any risk… in a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
— Mark Zuckerberg
Like many billionaire college drop-outs, Zuckerberg stresses the importance of taking risks. If you’re not failing at something, you’re probably not trying anything interesting. If you’re not trying anything interesting, you are almost certainly failing. So, it is the opposite of what one might think. Many entrepreneurs are risk-averse because they fear failing. But Zuckerberg sees it the other way around. Avoiding risk basically amounts to failing.
As Larry Page put it, “It is often easier to make progress on mega-ambitious dreams. I know that sounds completely nuts. But, since no one else is crazy enough to do it, you have little competition.” Most certainly Elon Musk would agree with that statement, having put it into practice with Tesla and SpaceX. Few people have the courage to dream insanely big, and even fewer have the resolve to follow up on their dreams. Lofty goals often mean lofty gains, so those who have taken major risks agree that it’s important to not be afraid to dream big.
Eli Broad put it this way: “No one ever made a million bucks by being cautious or timid or reasonable.” Broad should know. Broad was a renowned entrepreneur and philanthropist who is one of the few people to have ever successfully founded two Fortune 500 companies in different industries, Sun America Inc. and KB Home. His advice before his passing in 2021 was “Don’t play it safe. The moment you do, you neutralize any opportunity you might have had to achieve greatness.”
Go Big or Go Home
The adage “big rewards require big risks” has indeed become a mantra echoed by countless billionaires, millionaires and even bootstrapping entrepreneurs. The underlying psychology behind this belief is rooted in the concept of opportunity cost. When business owners choose not to take a risk, they’ve essentially forfeited the potential rewards that could have come from that risk. This is especially true in a rapidly evolving business landscape where innovation and disruption are the norm.
Moreover, taking risks can often lead to personal growth and development. It can push individuals outside of their comfort zones, forcing them to learn new skills and adapt to new challenges. This can, in turn, increase their resilience and adaptability, qualities that are essential for long-term success.
Reckless vs. Calculated Risks
However, it’s important to distinguish between taking a reckless risk and a calculated one. Reckless risks are typically impulsive decisions made without careful consideration of the potential consequences. They are often driven by emotion over logic. Calculated risks, on the other hand, are informed decisions made after thorough analysis and evaluation. They involve weighing potential rewards against potential risks and making a deliberate choice. For entrepreneurs, the ability to weigh risk vs. reward is a critical skill.
There is a checklist of steps business owners can take to ensure that the risk / reward calculation is done correctly and with careful consideration.
- Define Goals – Clearly articulate what is to be achieved with the risk. What are the potential benefits and why are they important? Is it strictly business or is there some personal – possibly biased – agenda?
- Assess the Potential Rewards – Quantify the potential rewards as accurately as possible. Consider both financial and non-financial benefits. But don’t overinflate the numbers. Be conservative in the potential return on investment.
- Evaluate the Potential Risks – Identify and assess the potential risks associated with the venture. Consider both financial and non-financial risks. Whereas rewards should be estimated conservatively, risks should be overestimated liberally. That’s because there are foreseeable risks but there are also unforeseeable risks.
- Calculate the Risk-Reward Ratio: Determine the ratio of potential rewards to potential risks. A high risk-reward ratio suggests that the potential benefits outweigh the risks.
- Consider Your Tolerance for Risk: Evaluate personal risk tolerance. Is the risk taker comfortable with high levels of risk, or does that cause anxiety, lack of sleep and fear?
- Develop a Contingency Plan: If things don’t go as planned, what can be done? Having a contingency plan can help mitigate the impact of negative outcomes.
- Seek Advice: Consult with trusted advisors, mentors, and industry experts. Discuss the perceived risks and rewards and see if they believe those calculations are accurate. Do they think it is a worthwhile risk? Those insights can provide valuable perspectives and help in making an informed decision. Jeff Bezos, for example, shared his plan for Amazon with his wife, friends on Wall Street and his parents, who invested in his vision.
- Be Prepared to Adapt: The business landscape is constantly changing. Be prepared to adjust strategy as needed to address new challenges or opportunities. All of the judges on Shark Tank confirmed that most new businesses will have to pivot at least once when unforeseen circumstances arise.
Failure is One of the Secrets to Success
The concept of big rewards requiring big risks is illustrated time and again in countless success stories. For example, Elon Musk’s ventures into electric cars (Tesla) and space exploration (SpaceX) involved significant risks, but they have also resulted in groundbreaking innovations and substantial financial rewards. Similarly, Steve Jobs’ decision to bet on the iPod and iPhone transformed the music and mobile phone industries, despite facing skepticism and competition.
Don’t be daunted by the risks ahead. Billionaires have all embraced the challenge, willing to see what comes! Just remember that not all risky ventures result in success. Many entrepreneurs have learned the hard way that even the most calculated risks can lead to failure.
Indeed, Richard Branson is arguably one of the best-known entrepreneurial risk-takers in business. He has tackled everything from starting his own phone service with Virgin Mobile, to disrupting the airline industry with Virgin Atlantic and Virgin America. And is now redefining the cruise industry with Virgin Voyages. All his business ideas have involved calculated risks facing major competitors in burgeoning industries. So, it is no surprise that Branson has also seen his share of failures. But, according to Branson, that is the secret sauce to his success. He explained, “Few first ventures work out. It is how a beginning entrepreneur deals with failure that sets that person apart. In fact, failure is one of the secrets to success, since some of the best ideas arise from the ashes of a shuttered business.”
The key is to strike a balance between daring ambition and prudent decision-making. It’s important to remember that not all risks are created equal. Reckless risks can lead to disaster, while calculated risks can be a powerful tool for achieving extraordinary success. Entrepreneurs who carefully weigh risks vs. rewards can make informed decisions about which risks are worth taking and which to avoid.
Quote of the Week
“If you are not willing to risk the unusual, you will have to settle for the ordinary.”
Jim Rohn
© 2024, Keren Peters-Atkinson. All rights reserved.
The post To Succeed, Do as the Billionaires Do, Part 5 first appeared on Monday Mornings with Madison.