Issue: The Price of Avoiding Risk

Ted founded a high tech business that did well enough to have a successful IPO. Almost over night he became wealthy.

Before the IPO Ted was an entrepreneur. Afterward he became preoccupied with avoiding risks so as to preserve the value of his stock. He also became a frustration. He shelved every new product proposed by his product development team. He was afraid to enter new markets, even though research indicated strong market potential.

The products of Ted's company were successful enough to attract competitors. As competition increased, sales of his products decreased, and so did the value of his stock. Ted decided to cut costs. Because the product development staff had brought no new products to market, he decided to eliminate them. When Ted announced that he was laying them off to cut costs the board took action. At a special meeting they fired him, rescinded the layoff notices and hired a replacement for him. They knew that the company's future was in the new products and saw Ted as the problem.

Ted's story is not unique. Once people have something to lose they frequently become risk adverse and paralyzed with doubt. They become their own worst enemy and a liability to the business. After Ted was replaced the company grew and prospered beyond anything he could have imagined.

All decisions involve risk. Anything new, creative, or market defining takes a leap of faith. Leaps don't have to be blind if you do your homework:

Expertise: Seek advice from competent, trusted people to "call the shots as they see them."

Influencing factors: What support is there for the decision? What opposition? Can you reduce or transform the opposition into support? Who do you trust who supports the decision? Who is against it, and why? What are their reasons and "batting average" on previous related decisions?

Scenarios and probability: Assess the decision from a variety of perspectives. Do a best-case scenario, a worst-case one, and one for the most likely outcome. Reality will be somewhere in between. Assign each a probability. Can you live with the worst-case? How do the potential benefits compare with the risks?

Experiment: Can you proceed with the decision as an "experiment?" If so, you can probably limit your risk. Experiments permit you to try out a decision and enable you to make adjustments without loss of face.

Intuition: Many people go with their "gut" and then look for the facts to support their instincts. I'm not suggesting that, but your intuition can be correct. What does it tell you? Why? What is its track record? What is the intuitive sense of the people you trust?

No one "bats 1000": Accept that some decisions will disappoint you. Learn from them. If you've done your homework and made your best call using the resources available to you, you've done your best. Even if your decision backfires, life will go on and you will recover.

Sincerely,

Ian Jacobsen
Certified Management Consultant