Business is a high risk, high reward pursuit. CEOs attempt to figure out what will be popular in future, all the while fighting of rival firms that are smarter, work harder, and can outspend on everything from marketing to research and development. A slip-up could tank the entire business. But make the right decision, and a risk-taking CEO could make a company quite rich. Deciding on the right strategy in this massively competitive world is critical, but it’s also incredibly challenging. However, there are some business people who seem to, time and time again, take a gamble and see it pay off in spades.
Examples are many: Apple’s decision to enter the phone market seems obvious now it has dominated the market, however it was quite a jump to go from iPod/computer manufacturer to the world of telecoms. When Microsoft decided to get in to the video games space with the Xbox in 2001, it came with the guffaws of thousands of sceptics. It ate a loss of almost US$4-billion on its first console, but is now in control of its own multi-billion dollar entertainment business. Of course, the poster-boy for business risk and reward is entrepreneur Elon Musk. In 2008, with the US economy at its lowest, Musk’s fledgling car company Tesla was feeling the strain. It was unable to deliver its first car, and was at severe risk of losing everything. Musk invested his last US$35-million in cash to keep the business afloat. It was a gamble that paid off. Tesla is now worth US$2.5-billion.
So what traits make for good decision making, especially when the chips are down? There are a few characteristics inherent in successful risk takers, and they have nothing to do with an impulse decision.
Knowledge is power
You might think that a successful risk taker is a bit of a chancer in all walks of life. That they make leading, not reading, a priority. But risk takers pore over the details, they do their homework and explore situations inside and out. Before launching TOMS, CEO Blake Mycoskie didn’t put together his business plan on a hunch. He looked at pages and pages of data, on both the shoe industry and charitable contributions. When he launched his business model, that involved giving some of his profits to people in need, others called him crazy at the time. Now, it’s a model all socially responsible companies hope to follow, and one that has netted TOMS millions.
Risk taking is a process
Once you know all the facts, then it’s time to put that information to good use. Risk takers are planners, and typically map out steps they need to achieve their goals. Instead of looking at a decision as one giant risk, they tend to break it down step-by-step in to a series of smaller risks. Generally, risky decisions are part of a longer-term goal.
Risks always pay off
But not in the way you might think. There’s a philosophy in Silicon Valley start-ups to not just to believe in failure, but to embrace it. If you take a risk and it doesn’t pay off, learn from your mistake so it doesn’t happen in future. Harley-Davidson was at near-bankruptcy from 1969 to 1981, when its parent company American Machine and Foundry decided to streamline production. Low quality motorcycles led to declining sales, and when the struggling motorcycle-maker was sold to investors Vaughn Beals and Willie G. Davidson, it quickly went in another direction. It went back to its retro-styling and high-quality parts, and eventually won its buyers back one by one.
The difference between risk-taking and a gamble
Sometimes the word gamble is just that. And while there is no shortage of successful business risk-takers, every now and again the odd gambler comes out on top. With his company struggling to hang on, and in desperate need of a loan to cover fuel expenses, FedEx CEO Fred Smith made a last-ditch effort. He went to Vegas, and put the company’s remaining US$5,000 on a game of blackjack. At the end of the weekend, he had US$32,000 in his pocket, enough to keep the company running.