How Great Minds Prepare Themselves for Great Risk

“What’s the worst that can happen?”

The questions been asked a billion times by bumbling heroes on the silver screen. It’s always rhetorical, and it always proceeds the worst that can happen actually happening.

In cinema, of course, the hero inevitably finds a solution before their world falls completely apart. In business, similar situations are rare.

Still, in a time when innovation and risk-taking are key components of a successful business, we’re hesitant to ask the question in a serious manner. Maybe because those components have been romanticised in the age of entrepreneurship, maybe it’s because people tend to be overconfident about their ability to control events.

Whatever the case, risk analysis often fails to get the focus it deserves. If you want your business to thrive well into the future, that needs to change.

It all starts by redefining how we see risk. A traditional definition portrays risk as an exposure to danger. I prefer this definition by Elroy Dimson of the London Business School:

“Risk means more things can happen than will happen.”

The distinction matters because the traditional definition is too narrow, and a little hyperbolic. Exposing a company to risk isn’t always dangerous. The worst thing that can happen often won’t. However, risk does expose the company to far more possibilities that will impact their future than it would face otherwise.

Our job as leaders, therefore, is to recongise these possibilities, determine which are most probable, and prepare for each.

When I say prepare for each, what I mean is this: ask yourself, “of all these possibilities, only one will prove the outcome. Whatever this outcome is, am I willing to accept it?”

Are you willing to put your company’s resources into a single, long-term project that has a certain chance of failure?
Are you willing to accept lower returns if the project doesn’t prove as successful as you envisioned?
Are you willing to stake my reputation, my career, my future on this project?

If you can’t answer yes to questions like these, if you can’t justify specific concerns factually and objectively, then the risk, however small, is probably best not taken.

I know that can be hard to stomach. I know entrepreneurs often glorify the failures of their past.

But let me tell you this – those who can talk about their failures in this way do so because they were prepared for them. Most aspirational entrepreneurs aren’t. They’re the ones you don’t hear from, because they took the risk, and it beat them.

Success doesn’t come easy. It doesn’t come fast. As great as an idea might sound (especially if it’s your idea), if the risk is too great, let it go. Better your business lives another day than see its ashes scattered alongside those who failed to ask themselves “what’s the worst that can happen?”

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