Taking a risk is subjective; what one person considers risky another might not give a second thought.
As we age, we certainly become more risk averse, sinking back towards the ‘tried and true’ rather than the ‘new and exciting’.
This can be part of our in-built wiring – we get better at making risk judgments as we age, since we now have a history from which to refer.
You only have to ask yourself whether you’d repeat some of the things you did when you were 20!
From a financial perspective, some of this decision-making process is due to having more at stake – financially, we are generally wealthier in our fifties than we were in our twenties, and have more to lose if things go wrong.
This risk aversion sometimes stems from having previously been financially harmed. We instinctively shy away from previous bad experiences.
With too many bad memories returning, we start to believe that the same thing can happen again. Yet in many cases, these previous bad experiences were circumstantial and not directly related to the actions that we took.
I see this time and time again with jewellery storeowners who stick to the same path of action over and over again even though the market has moved on.
As it turns out, avoiding change can be the greatest risk of all.
Failing to take a chance can be more risky than taking a few calculated gambles – that is, ensuring the risk factor is managed as effectively as possible.
So, in what areas of a business should you take risk?
Inventory – Product is one area that should be managed by the numbers and I’m a firm believer in continuing to reorder and resell, until it sells no more.
However a certain percentage of your buying needs to be focused on testing new products that may become winners.
You are losing out on the potential for greater revenue if you continue to solely stock the items you’ve always stocked.
When it comes to widening your product offering, take a strategic approach and look for the gaps that could be easily filled with an item that will delight your loyal customers, or bring new customers into your store.
Marketing – The digital world has made it easier than ever to measure the impact of your marketing strategy.
Split testing – also known as A/B testing – is the automated process of showing different marketing material to two different audiences and seeing which one gets the best response.
For example, you could see which of your two Instagram ads – one with a flat-lay product image, or one with a product on a model – gets the most customer click-throughs.
It’s a great way to quickly refine and evolve your strategy to its optimal level.
By constantly reshaping and trying new marketing headlines and offers, you can easily determine which works best with a minimum of risk.
Price – Do you really know how much that item can sell for? Could your mark-up be higher than you currently charge?
Testing the market for price can offer considerable returns for very little risk.
All of these areas have one thing in common – they can be calculated risks with a limited downside that can be easily reversed.
None have the power, on their own, to cause permanent damage to your business; all of them offer an upside that far outweighs their downside.
Calculated risk taking is part of entrepreneurship – after all, being a business owner is a risk in itself.
The important question when considering a risk is to determine what the worst-case scenario will be if things don’t go according to plan. In most cases, this downside is actually minimal.
I recommend having a ‘risk budget’ as part of your annual plan.
This isn’t an expense account line item, but rather a portion of your funds, in several different areas, that you are prepared to risk in order to move your business forward.
In every case, you need to decide if the upside offers a multiplier several times higher than the downside, and whether the downside can be capped at a certain point to minimise that risk.
If you explore these options you will find, that there are many opportunities in your business to take controlled risks that can offer significant upsides – and some of these risks could potentially catapult the business to another level.
When you assess these risks on that basis, you will find the risk really isn’t that big a risk after all.