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Think Avoiding Business Risks Has No Cost? Think Again

By Small Business AllBusiness.com

In a recent blog, Marketing Guru Seth Godin asks, “How much does it cost you to avoid the feeling of risk?” He wasn’t talking about actual risk, only “the feeling that you’re at risk,” that mental checklist that we all review prior to making a decision to do something. Godin concludes, correctly, that we rationalize that avoiding risk is a “no cost” option and something that is perfectly acceptable.

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“Hey, at least I won’t lose.”

The reality is that risk avoidance is the greatest impediment to progress, personally and professionally. We have been conditioned for self preservation and as a result, we can easily justify the mitigation of risk with well-worn excuses, such as “I didn’t want to lose.” Yet this is hardly a zero sum game. Avoiding risk means passing on opportunity and thatis costly.

Opportunity, like time, is perishable. Miss an opportunity to move your business forward due to risk avoidance and a competitive advantage could be lost. The cost could be an erosion of market share, revenue, profit, employee flight, or the decline of your business. And when any of those things happen, the very thing you were afraid of—the risk of losing—has become a self-fulfilled prophecy.

Seth Godin also writes, “We’ve created a cultural taboo about feeling certain kinds of risk,” which causes us to insulate ourselves from it. I would say the “everyone gets a trophy” philosophy in youth sports is a prime example of Godin’s premise. By supposedly insulating children from the risk of disappointment, we only postpone this reality of life. Failure is not a question of “if,” but always a question of “when.”

In my 30-year entrepreneurial career, I’ve observed a lot of businesses, and if I had to pinpoint one thing that was responsible for success it would be risk. Those who were willing to continuously embrace risk, each and every day, were successful. They had a “play to win” attitude rather than a “play not to lose” outlook. And when you play to win, risk is nothing more than a cost of opportunity.

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Opportunity always comes with risk. Those who avoid risk out of fear, to seek certainty in life, are prisoners of hope, trapped by the unrealistic expectation that opportunity can come without a cost. What they are missing is that certainty comes at a cost. Certainty robs us of a just reward, the very incentive that motivates us to pursue opportunity in the first place.

The fallacy that risk avoidance somehow is without cost and therefore an acceptable strategy fails to consider opportunity cost. Too often opportunity cost is disregarded because we base our decisions on superficial criteria or the immediacy of a potential negative effect.

In my own entrepreneurial career, had I only considered the near-term risk versus the long-term benefit, it would have cost me millions of dollars. Early in the life of one of the companies I co-founded, my business partners and I were at a critical decision point—change our business model and head in a completely different direction or stay the course and continue with our original (and successful) strategy. Conventional wisdom, which Godin refers to as cultural taboo, would suggest that we stay the course as doing so would allow us to avoid the risk of being wrong. However, my business partners and I made the change, followed the new strategy, and completely dominated our market.

Clearly the acceptable decision to maintain our original strategy was the lower risk alternative. Traditional business logic would have justified our choice. And the excuse we would have given, “we just weren’t willing to risk it,” would have been accepted without question. Sadly, we would have been applauded as prudent and wise despite the millions of dollars that we would have sacrificed.

Prisoners of hope avoid risk because of the fear of failure and ironically this avoidance becomes a self-fulfilling prophecy. They accomplish nothing because of risk avoidance and the only certainty is failure. So it is only by embracing risk that we get opportunity. And opportunity is what provides us reward and thus freedom.

Risk avoidance is not limited to entrepreneurial pursuits either. The artist, performer, or athlete who fears rejection of their work or efforts will avoid the desire to express themselves and be deprived of the reward: accomplishment. Meanwhile their passion will be trapped in a self-imposed prison because we mistakenly assume that a life free from risk costs us nothing.

Risk means having to face an uncertain outcome. And let’s face it: Most people do not like uncertainty. But if you are to follow your dream, you are going to have to stare risk down and conquer it. There is simply no alternative.

Tom Panaggio, author of The Risk Advantage: Embracing the Entrepreneur's Unexpected Edge, has enjoyed a 30-year entrepreneurial career as co-founder of two successful direct marketing companies: Direct Mail Express (which now employs over 400 people and is a leading direct marketing company) and Response Mail Express (which was eventually sold to an equity fund, Huron Capital Partners). As a result, he can give a true perspective on starting and running a small business.  For more information please visit http://theriskadvantage.com.

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