Everyone wants to play it safe. Your investors play it safe when they make demands for their investment or curtail it based on their assumptions of you and your business model. Your employees play it safe when they simply clock-in and clock-out, not wanting to stay overtime to help grow the business and, in turn, increase their earning potential. And you play it safe, by not giving in and pursuing incredibly risky business investments that could make or break your business.
Playing it safe can work short-term but, over the long-term, you need to take risks if your business is to survive and corner the marketplace. Even from a simplistic view of inflation and economics, you need to increase your business’s earning power year after year due to the inflation of currency. Selling your product for $10 today will not be the same as selling it for $10 in five years. If you want your business to grow, you cannot play is safe. You need to take calculated risks.
Calculated risks are the middle ground between not taking any risks at all, and taking huge risks that threaten the vitality of your business. With calculated risks, you can slowly and durably build your business’s profile and reputation in your local community, as well as improve your products and services offered to customers over time. The simplest way to understand if a risk is calculated or not is to think about its effect. Will your business be affected more in the short-term or the long term? Calculated risks that improve businesses mostly affect the long-term.
CEOs in every industry pride themselves on cutting quarterly expenses (which improve net profits and make their companies seem more successful than they really are). After repeating this process of slashing salaries and services, these CEOs move on to other companies where they tout their managerial experiences as having saved X amount of dollars at company Y and company Z.
However, over time, the only thing these CEOs do is run the companies they have been entrusted with into the ground. This is not the business strategy you should be pursuing. Do not play it safe.
Rather, you need to spend a little more to make a little more. It is a fact of business many like to deride and hide, pretending that every penny saved is actually a penny earned. The thing is, businesses are an investment and they need to be invested in or else they will stagnate.
So, what do we do? How do we know which calculated risks to take? The truth is, these answers are subjective and vary depending on the business and business owner. You need to look at the current state of your business and your business goals, and see whether you are on a set trajectory to achieve your goals. If you are not, you will need to alter your plans. Calculated risks simply expedite this process, leading to quicker gains.
When making calculated risks, do not make a decision that is out-of-character for you or your business. If you run an automobile repair shop, for instance, do not quickly leap into motorcycle repair, believing you can easily fix motorcycles or that all transportation vehicles are the same. First, decide whether you and your staff have the knowledge and experience to fix motorcycles, the appropriate tools needed to use them, and whether you want to fix motorcycles in the first place, before branching out into motorcycle repair. It really does not matter what type of business you own.
This analogy fits in most industries. Do not enter a corner of the market, or even a new marketplace, where you do not foresee a favorable return for you and your company. If you run a laptop repair store, you should decide whether you want to branch out into smartphone repair without making sure you can, for instance.
This is not to state that you should never branch out and accept new risks. Just ensure you are aware of the benefits and pitfalls of each business decision you make, whether your business is stable enough to handle them, and whether your business will grow stronger as a result, before finalizing your decision.
One method to ensure your calculated risks are more successful is to engage your customers and listen to their ideas on how your business can improve. Anything from an emailed poll to a suggestion box near the store entrance can help you reach customers and visitors, who may have ideas you have not even considered!
They may feel your products are slightly overpriced, for instance. In this case, you may not need to do anything except lower your prices a bit and increase sales volume, or introduce a loyalty program with price reductions to achieve a boost in sales with your higher prices. You could, for instance, reward customers for referring others to your store. You might even have 2-for-1 sales, or promote certain discounted products during certain months depending on the public holiday schedule. The possibilities to reach out to your customers are endless. You just have to try!
I Have an Idea. What’s Next?
Once you have a calculated risk in mind, you now need to implement it. This is actually the easiest part. All you have to do is decide on a course of action (which you have already done), implement it (which you are doing now), and wait for the results (it may not require much effort but it can be nerve-wracking to you). Market-test your calculated risk first. Do not immediately embrace your idea. Test it out first.
If, for instance, your customers want you to stock smaller versions of your products because the sizes of goods you currently stock are too large for their tastes, you can stock a portion of your inventory with smaller versions and observe how well the items sell. If they are flying off the shelves, you know you have a hit! Slowly increase the amount you purchase until you realize diminishing returns on your calculated risk. Then, find another calculated risk to grow your business again.
Business growth is not static. It is a dynamic process that fluctuates and changes. It will not stop as long as your company exists. Even if you run a profitable business and pass it down to your children or friends after many successful years, the need for calculated risks never dies. You and your successors need to always be on the lookout for the next opportunity that can benefit your business.