Starting a business usually involves significant personal, professional and financial risks. But while most business owners and entrepreneurs are hardly strangers to business risks, it's often hard to know what constitutes a risk that's likely to succeed.
Adam Mendler, CEO of technology venture company The Veloz Group, says that an acceptable risk is one that's well-justified and offers a higher expected value than alternatives.
“Before taking significant business risks, it's important to identify, research and evaluate all your options—which may range from radical action to doing nothing," he says.
According to Dan Spalter, co-founder of roommate matching service Circle for Roommates, good business risks should be taken with the big picture intention of improving pre-determined KPIs.
—Adam Mendler, CEO, The Veloz Group
“Before taking any substantial risk, your team should try to find less risky means of achieving the same goal," he says. "If a safer alternative does not exist, a business owner should brainstorm creative ways to reduce the potential loss."
Both Mendler and Spalter have taken valuable business risks to drive their organizations forward, including the following:
Going All In
"The biggest risk was taking the plunge, leaving a corporate career to start something from scratch," says Mendler. "The entrepreneurial journey has been invaluable, though, as I have learned, grown and developed in ways unlike any others in my professional or educational careers."
Competing With Established Companies
Many owners are in the business of disruption. This means, however, that you're competing with organizations with multi-million dollar budgets, and the ability to take and implement your concept.
It may seem like there's no way to win in this scenario, but by being agile and innovative—and by taking calculated business risks that other companies won't touch—you can be competitive.
“If you commit to going beyond plain vanilla marketing, you can make big strides with limited resources," says Spalter.
Hiring While Bootstrapped
Having a lean business operation meant that time and time again Mendler's team had to stretch dollars to hire and retain the right people, because top talent is expensive.
But “this risk was worth it," he says, "because a great team is instrumental to the success of any business and the proof [is] in the performance."
Spalter recalls how his team did not have the money to make critical updates to his product for a new version of the iPhone.
Instead of putting the business in an unstable position, Spalter took the risk of hiring an inexpensive developer based in India who was unproven in terms of capability and reliability.
“This decision required extra vigilance," he says, "but it afforded us the runway we needed to improve our KPIs and raise additional capital."
In the early days of Circle for Roommates, Spalter's team created a viral video that poked fun at a high-profile competitor.
"We were worried the other company would come after us, but it was a great opportunity to position ourselves as the safer alternative," he says. Over 20,000 people viewed the video in 24 hours.
Of course not every risk will go well. But failure is an important part of the business development process. If you aren't willing to attempt a variety of strategies, you may never arrive at a solution that will. And by planning carefully, giving the risk the appropriate amount of time to pan out and understanding that the world won't come to an end if the risk goes bad, you can help increase your comfort level with taking risks.
Read more articles on risk assessment.