Thoughtful risk-taking is the attempt to use consideration with some sort of fact-finding process in an attempt to minimize the severity of the potential consequences before deciding to take risks. The purpose of taking thoughtful risks is to lessen the overall impact of severe consequences since a level of risk-taking applies to most of our decisions. Even the decision not to make a decision has a consequence, whether it’s a negative or positive consequence and the severity of the impact depends upon your situation. We can take a thoughtful approach to any business, personal or financial risk.
Defining thoughtful risk
Again, thoughtful risk-taking is using consideration with some sort of fact-finding process in an attempt to minimize the severity of the potential consequence before agreeing to take a risk. Thoughtful risk is similar to simply guessing vs. taking an educated guess. The former leaves the possibility of success up to complete chance, and the unknown factors tend to also increase associated levels of anxiety. Practicing thoughtful risk-taking requires you to leave your comfort zone while still inspiring you to accept new challenges and embrace change.
According to Ajay Banga, President of the World Bank and former leader within Citigroup, Nestle, and PepsiCo, leadership is about more than just a title. Banga is often quoted as saying, “leadership is about making a real difference in people’s lives,” tied specifically to his belief that those who take thoughtful risks will be the successful leaders of the future.
Benefits of thoughtful risk-taking
Benefits to you:
- Personal success
- Personal growth
- Less negative impact
- An opportunity to build credit
- More consistent positive outcomes
- Achievement of stronger business results
Benefits to society:
- Economic growth vs. related decline
- Job creation
- Fewer defaults on loans
- Economic stability and less unrest
Entrepreneurs and entrepreneurship students must learn how to utilize thoughtful risk-taking to increase their overall tolerance for risk.
Understanding how thoughtful risk-taking applies to you
When there are not enough facts to actually perform an actual calculation, think logically and consider your outcome; know what you’re looking to achieve and if the potential consequences are worth it to you.
Consider this example: you purchase materials for your business and must start paying back the $5000 debt in 4 weeks. You currently bring in enough money to cover your basic personal bills each month with approximately $500 left over.
- Risk having a fun night out, which may include putting money into a slot machine? Chances are you’ll lose it, but how much is worth it? Can you stop yourself? Do you have the $ to lose? If so, how much?
- You spend $5 a day each on 5 items you technically do not, such as coffee out, vaping/cigarettes, nights out anywhere there is a cost, having food delivered vs. walking 3 blocks or making something for less at home, or whatever excess you are selecting. You may want it. It may give you joy. Forgoing those items for 11 months on a payment plan (paid on time) pays it off. Can you find ways to still have fun and treat yourself? Of course. But should you? Do you?
- You consider options and want to pay it back, save something for your future plus treat yourself. Can you save $10 per week and also select 1 treat per week? You have options, and it’s your choice.
The choices come with positive and negative consequences. As a business owner, you need to decide which consequences are worth it and know how much each consequence impedes your success and extends your timing.
How to use thoughtful risk
Here’s a general example of how steps forward and back still add up to a positive.
- Follow me on this: Starting at 0: You take 5 steps forward – 3 steps back + 7 steps forward – 2 steps back + 3 steps forward – 6 steps back + 3 steps forward = growth of 7 steps forward. In a true business sense, you are adding compounding numbers in there as well, so the growth becomes more significant. Then add in savings from scale, and the overall picture is even more positive.
You can apply this same thinking to your long-term financial strategy. Saving today adds up to a much brighter future for you when you are older. Too many people think they’ll catch up or have no interest in saving right out of school and think those $15 a day choices have no real consequence. You’re smarter than that.
You can apply this thinking to the hours you invest in your business. You can apply this same thinking to exercise. Literally, start anywhere and do what you can. 1 hour a week is still 4-5 dedicated hours a month. It’s WAY better than nothing. It can maintain your foundation.
6 more hours of scrolling not tied to a step forward is another 6 hours lost. Again – you’re smarter than that.
Taking advantage of the compound effect is in your best interest.
Thoughtful risk in action:
A real-life example:
I currently partner with an entrepreneur who is developing a multi-billion dollar change-the-world type of technology. This past year, he hit unexpected regulatory hurdles resulting from illegal competitive actions. Illegal or not, it impacted him. Did he give up? No! But he does need to pay bills short-term and knows it’s going to take several more unexpected years to get there. We revisited his business plan, gathered the known facts, considered unknowns, and changed course.
The result? He found a byproduct he can sell today, not for billions of dollars, but for millions. As he continues to work through the other hurdles, he can sell the byproduct now, pay the bills, and still invest time and $ into the adjusted longer-term plan. Thoughtful risk allows you to grow, change and stay in the game – and often reap unexpected benefits.
risk tolerance chat via Harvard Study
A common theme among Fortune 100 senior executives is the importance of taking risks. Executives routinely credit much of their success to a series of risks they took in their career. It’s important to challenge your fear, but don’t simply take risks and hope for the best. As discussed, longshots don’t typically pay off. It’s gambling.
Based on the obvious percentages, you’ll likely lose when you gamble, so toss in a strategy, and some facts, bring up your educated decision-making into play, and suddenly you become a smarter – THOUGHTFUL – risk-taker.
Practically speaking, it’s good sense coming into play and protecting you. Some may say that a risk-averse person is destined to lead a stable but perhaps unextraordinary life, but that isn’t so. When we’re talking chances of survival – or chances of paying your mortgage next month – or having a nest egg and actually retiring above poverty level – risk avoidance doesn’t sound so bad! It just requires balance, so you can actually work toward having it all. That’s where thoughtful risk-taking shines. Being a thoughtful risk taker helps you evaluate new opportunities and determine what risk is worth taking based on your circumstances.
I read an article that almost made light of saying as if it was 50/50, if you welcome risk, you’ll either crash and burn or be wildly successful. I do not agree. There is no 50/50 about that. I don’t know if there’s an actual true stat pulled and used for their purpose or not. You know the saying about statistics, lies, and liars use statistics, right? From experience, I’d reckon it’s 90/10 or maybe even higher. Maybe I can pull statics from casino payouts vs. amounts played.
Regardless – I’m just telling you to welcome risk and consider it all, but only move forward using your brain and common sense.
The bottom line is to use risk-taking to increase… your bottom line!
Thoughtful risk helps balance big risks and serious unknowns with wiser, more cautious decisions. It’s still courageous! It’s still a risk, but thoughtful risk-taking pairs your judgment and business knowledge with potentially negative consequences, so the amount of risk can be lessened – or accepted as worth it. Just know you won’t likely achieve your ultimate goal by throwing caution to the wind, but you will not achieve it by simply standing near the finish line, either. Thoughtful risk-taking is a wiser form of risk-taking that will help you stand strong and grow more than you will fall back. Continue enthusiastically striving. You are ready. You got this.