Risk is inherent to entrepreneurship.
The essence of entrepreneurship is imagining something that doesn’t exist and bringing it to life. Even if you know the space and have a powerful idea, devoting some portion of your life to an unproven idea means placing a bet with your most powerful resource—time.
But all risk is not alike. Risk comes in many flavors, each of which is called for at different points in time.
A further compilation is that humans inherently mistrust risk. As creatures who have evolved to preserve our survival at all costs, we always feel some resistance when stepping into uncertainty. This risk aversion can both prevent us from taking calculated chances and create a desperation that makes us take unnecessary risks.
An important note for all entrepreneurs: When deployed well, risk is an asset. Knowing how to distinguish between different kinds of risks—and when to take each—is at the heart of successful entrepreneurship.
The 3 main types of entrepreneurial risks
- Controllable risks. There are certain risks that are completely within your control and that you can therefore avoid by simply not doing them. For example, misrepresenting your financial figures to investors or regulatory bodies is something you don’t have to do, but is a risk that some organizations take (not one that I sanction).
- Semi-controllable risks. A semi-controllable risk depends both on events within and not within your control. An example would be cybersecurity threats. While you can’t control or contain all threats, you prioritize cybersecurity at an early stage of their business, and thus diminish cyber threats down the road. Launching a new product or feature is another example. You can’t guarantee that your customers will like or use it, but you can put effort and care into its design and release.
- Uncontrollable risks. An uncontrollable risk is something that could happen regardless of what action you take. The weather, for example, is an uncontrollable risk for event planners. For entrepreneurs, the state of the economy is an uncontrollable risk. You can build your company to be resilient in healthy and strained economic conditions, but you have no direct control over how the economy fluctuates.
How to take business risks intelligently
- Enumerate and categorize the risks you face. No one can anticipate everything that might undermine their business, but you can certainly identify obvious and semi-obvious risks. They can be related to your core product/service, personnel, legal standing, competition, financial health, etc. Naturally through this process, you’ll also triage risks based on which pose the most and least urgent threats.
- Start small, and graduate to bigger risks over time. Going all-in on your first poker hand is rarely a good idea. In entrepreneurial terms, the equivalent is dropping to everything to go all-in on a business concept. The smarter approach is to prove out different elements of your concept over time, and place bigger and bigger bets as you accumulate more substantial data.
Of course, big bets are sometimes called for. Meta’s metaverse play is a good example. While Zuckerberg’s bet hasn’t paid off yet, Facebook had to reinvent its image, bring a new weapon to the fight for users, and innovate toward next-gen tech. A bad reputation, a flagging user base, and a disruption based on 2007 tech all posed significant risks to Facebook.
- On the culture side: Redefine “success” as risk well taken. Particularly for startups, growth either happens through risk or not at all. It’s impossible that every bet you place will go your way, but it is possible to take risks in a thoughtful, calculated, informed way. Even when these risks don’t pan out, if you make a point to celebrate the ventures, it will encourage your people to do more of the same in the future.
Plus, learn from your predecessors. There are numerous case studies of risks well taken, like this extensive one from the Harvard Business Review. There are innumerable methods of mitigating risk—and the more out of the box, the more innovative, and the more likely to be resilient over time.