Taking Risks in Business
With the world changing at a tremendous pace, it would be a huge mistake not to bring changes in your company. CEOs either play it safe or take risks. While the former gives stability – or rather the illusion of stability – in the organization, it doesn’t last long before an aggressive new competitor sweeps in and takes over the market.
As Mark Zuckerberg once said, “The biggest risk is not taking any risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” To keep up with your competition and reduce risk, you have to update processes and bet on new experiments in the company.
One of the most common conversations we have with CEOs is the major changes they are making in their business. Some of the conversations are very business related – in regards to how they came to that decision, and what is going on in their industry to drive that change.
The other types of conversations we have evolve around the mental toll those risks bring.
Taking Risks in Business – Risk keeps your mind ‘fresh’
When you join someplace new, it excites and intrigues you. Work is interesting, and you look forward to proving yourself. Yet after a while, the work gets stagnant, and your productivity goes down. It’s human nature to lose interest in something which is repetitive.
IBM’s current CEO and President, Ginni Rometty, talked about how she keeps her mind “fresh” at the FORTUNE Most Powerful Women Summit. She advises executives to keep themselves stimulated by doing something that puts them in a zone they don’t know or are not in your comfort zone.
Of her experience as an executive, Rometty said, “If I sit here and close my eyes and say when did I learn the most? In my life? In my career? It’ll always be, when I close them, and everything I think of is when I took a risk. It’s when I learned the most.”
Taking Risks in Business – Challenge conventional thinking
Conventional thinking favors anything which doesn’t rock the boat. CEOs who don’t bring change to the company are either afraid of any inherent dangers caused by taking a risk, fear the unknown or don’t see the end of the track when things around them start changing. MasterCard’s CEO Ajay Banga challenged the conventional notion that their customers are older individuals in first-world countries. In four years, he has tripled the company’s Millennial customer base and issued cards to 13 million pensioners in Nigeria. His risk has paid off; in little over three years, MasterCard’s net income has increased from $5.5 billion in 2010 to $8.3 billion in 2013.
A study showed that as CEOs grow older, they take fewer risks. This, in turn, drives down a firm’s stock return volatility. Younger CEOs are more likely to take risks and give off more value to shareholders in the long run.
Taking Risks in Business – Be prepared before taking risk
Before you take any significant steps, make sure your company can handle failure and loss. Look at your margins before you commit to anything and have your business strategy aligned to the move.
Don Kurz, CEO of ad agency Omelet, said on Inc.com, “If you want to take these kinds of risks, you must commit your entire business strategy to that. Everything has to be consistently aligned and you have to be prepared for short-term profitability hits.”
Budget in advance for the risks you are going to take. It will give you a clear idea of how much you stand to lose and will help avoid overspending. Be aware that it can take a very long time before you see any benefits roll in. Sometimes, you will see greater non-monetary returns than financial ones.
Taking Risks in Business – You won’t be comfortable
“Growth and comfort don’t co-exist. That’s true for people, companies, nations,” said Ginni Rometty at the summit.
Taking a risk means you will be sitting on the edge of your seat until you see results. Anytime a company goes through a change; the CEO is faced with some or total resistance from its employees and shareholders. This is one of the biggest challenges faced by a CEO. Without the support of the company, new strategic moves will not have their desired effect and be more likely to fail.
Taking Risks in Business – Be patient
Yes, I realize telling a CEO to be patient is an oxymoron. We live for things like KPIs, dashboards, real time reporting and streaming information. When taking a risk, you need to give it enough time and see it through. When headed in a new direction, careful not to react to every blip or unexpected turn in the road. Make adjustments as needed and keep your eye on the road. You may not end up where you first expected but it will be a learning experience regardless of how it turns out.