How Entrepreneurs Manage High-Risk Situations

 

Contrary to popular belief, highly successful entrepreneurs are not risk seekers, they are risk mitigators par excellence. If you are a Risk-Taker, you instinctively know how to manage high-risk situations.

When encountering a challenging decision, you take an analytical approach, meticulously gathering as much information as you can, weighing all the options, and assessing everything that can possibly go wrong. Replacing emotion with a rational thought process helps you overcome fear, calculate your odds of success, and then decide whether to assume risks, such as committing resources to new projects, introducing new products and services, entering new markets, or investing in new technologies.

You tackle uncertainty and risk by working hard to collect every bit of information possible. From tracking past performance to number crunching and creating what-if scenarios, you determine the least risky solution to your business challenge. Your investment in acquiring information helps you make smarter choices so you can be ultra-confident about the outcome. Once you are certain of your choice, you are willing to put everything on the line for it. To an outside observer, this behavior may seem risky, but to you, the decision is well-thought-through and thus carries no risk.

Risk-Takers are avid problem solvers. Your love for what you do and an intense desire to succeed keep you motivated to spend long hours working on a challenging problem. You solve problems analytically. Consequently, you can see patterns and make connections between seemingly unconnected phenomena. This gives you the ability to recognize opportunities and take advantage of market gaps before your competitors do.

As a Risk-Taker, you have a belief, sometimes exaggerated, in your ability to control the destiny and future of your venture. This internal locus of control motivates you to take action when things are not going well. You are quick to pursue alternative options when you encounter setbacks. Your will to win remains undiminished even after a painful defeat.

A word of caution: Some extremely successful Risk-Takers hold themselves in high regard. This phenomenon is known as hyper-core self-evaluation (hyper-CSE). An extreme positive self-assessment can lead these entrepreneurs to overestimate their ability to manage risk, underestimate the capital required to launch new (read: risky) initiatives, and underestimate the uncertainties or potential perils in the external business environment.

If you are a hyper-confident entrepreneur, you are certain that you can do no wrong and that you can resolve all problems if a decision turns bad. You are likely to engage in impulsive or uninformed risk taking, are less accurate in your forecast of success, and are more likely to persist in pursuing strategies even when they are not delivering the results you hoped for. In addition, hyper-CSE may lead to "shiny new object syndrome" -- when you invest in multiple projects, overestimating your ability to get positive results from all of them, and in the process, end up hurting your core business.

Make sure to evaluate an opportunity rationally and thoroughly before taking action. Get feedback from people in your circle of trust. Take your time deciding which projects build on your core business and which are likely to take you off course. Keep the former, and get rid of the latter.

Risk-Taker in Action:

Bill Gates on Warren Buffett: "Warren doesn't outperform other investors because he computes odds better. That's not it at all. Warren never makes an investment where the difference between doing it and not doing it relies on the second digit of computation. He doesn't invest -- take a swing of the bat -- unless the opportunity appears unbelievably good."

Jeff Bezos, founder and CEO of Amazon.com: "Ninety-plus percent of the innovation at Amazon is incremental and critical and much less risky. We know how to open new product categories. We know how to open new geographies. That doesn't mean that these things are guaranteed to work, but we have a lot of expertise and a lot of knowledge. All of these things based on our operating history are things that we can analyze quantitatively rather than to have to make intuitive judgments."

Andy Dunn, co-founder and CEO of Bonobos: "Prior to a lobotomy I just underwent which removed shiny new object syndrome (SNOS) from my brain, I was both an asset and a threat to my own company. The company is trying to do one thing, and I would come up with another. I can't tell you how dangerous this is. If the founder doesn't know what the company is doing, the company won't either."

Maximizing Your Risk-Taker Talent:

1. Know what you do know and what you do not know. Understand the limits of your knowledge. Recognize the preferences and biases inherent in your worldview that can affect your judgment about the results you expect. Resist predicting outcomes based on limited evidence. Gather all relevant information before you take action.
2. Take risks incrementally. When exploring a new venture, a new market, or a new product, minimize risks by making a small initial investment and evaluating the idea at successive stages in the development process. Consider it an experiment. Build a prototype, test the market, and collect information. Then decide if the idea is worth investing in further or abandoning.
3. Beware of confirmation bias. Your extremely positive self-image may lead you to favor information that confirms your beliefs and opinions, while discounting information that contradicts your viewpoint. Do not let this bias influence your decision making. Ask people with opposing views to counter your initial idea or concept. Considering different points of view as well as your own will help you perceive opportunities more realistically and pick the ones with a higher probability of success.
4. Construct different scenarios to guide your decision-making process. Envision how things will unfold in the future, analyze the different directions a project can take, and estimate the outcomes in all directions. When you bring potential risk factors to light, you can choose the least risky path.
5. Don't gamble. Take careful calculated risks. Before an exciting idea sweeps you away in anticipation of what you will accomplish, impose a cooling-off period of a few weeks before you commit any funds. This will give you time to calculate the odds of success and put a plan in place to mitigate the risks.
6. Kill unimportant projects. You might overestimate your ability to succeed at multiple projects simultaneously. With your team, analyze all the projects in your company. Keep your focus on projects that strengthen and build on your core business. Ditch the rest.

The 10 Talents of Successful Entrepreneurs When Gallup studied entrepreneurial talent, we found a tremendous variety of behaviors among successful entrepreneurs. But after analyzing the data and listening to hours of interviews, we distilled everything down to a list of 10 talents that influence behaviors and best explain success in an entrepreneurial role. Every entrepreneur uses some mix of these 10 talents to start or grow a business: Business Focus: You make decisions based on observed or anticipated effect on profit. Confidence: You accurately know yourself and understand others. Creative Thinker: You exhibit creativity in taking an existing idea or product and turning it into something better. Delegator: You recognize that you cannot do everything and are willing to contemplate a shift in style and control. Determination: You persevere through difficult, even seemingly insurmountable, obstacles. Independent: You are prepared to do whatever needs to be done to build a successful venture. Knowledge-Seeker: You constantly search for information that is relevant to growing your business. Promoter: You are the best spokesperson for the business. Relationship-Builder: You have high social awareness and an ability to build relationships that are beneficial for the firm's survival and growth. Risk-Taker: You instinctively know how to manage high-risk situations. These 10 talents don't address every factor that affects business success. Non-personality variables such as skills, knowledge, and experience along with a host of external factors play a role in determining business success and must be taken into consideration when theorizing on business creation and success. But these 10 talents explain a large part of entrepreneurial success and cannot and should not be ignored. Understanding and acknowledging your inherent talents gives you the best chance at success.

This article is part of a series on the talents of successful entrepreneurs, adapted from the book Entrepreneurial StrengthsFinder(Gallup Press, September 2014).

Thank you to the source :

Sangeeta Bharadwaj Badal, Ph.D.

Gallup Press

More information about doing business in Indonesia, please click link below!