Game of Risk

Go for Broke

There are countless entrepreneurs taking enormous risks every day. But let's begin with Ramin Kamfar, 38, who last year grew his Eaton, New Jersey-based company, New World Coffee-Manhattan Bagel Inc., from a robust $40 million-dollar business into a $400 million one, which makes it the nation's largest bagel bakery chain, according to The Industry Standard magazine.

Kamfar has accomplished this by taking what many entrepreneurs would consider a major risk, particularly these days: New World spent $160 million to buy a bankrupt company, Einstein/Noah Bagel Corp., which was in debt to the tune of $30 million. In fact, over the years, Kamfar's company has made a habit of buying bankrupt bagel chains, including Manhattan Bagel Co., Chesapeake Bagel Bakery, New York Bagel Enterprises Inc. and its subsidiary Lots a' Bagels. Kamfar often says he wants to become "the Starbucks of the bagel industry."

But ask Kamfar about the risks of buying up bankrupt bagel chains, and he doesn't see it as dangerous. "Risk is part of any business, and it's inherent in any job, whether you're an entrepreneur or a midlevel manager," says Kamfar. "The trick is to learn to manage that risk and to make sure that all risks are calculated risks." He points out that Einstein Bagels spent $600 million creating its bagel empire. New World purchased the 465-unit chain for a relative bargain: $190 million, when you add in Einstein's debts.

Still, these are bankrupt companies he's buying. No worries, says Kamfar. New World is structured so if a new addition to the business doesn't turn around, it won't bring ruin to the overall enterprise. "One book I re-read all the time is The Art of War [by Sun Tzu, Oxford University Press]," says Kamfar, "and one of its central messages is: 'Don't get defeated.' While that may sound simplistic, or even silly, it's actually very profound. As you make your bets, don't do anything that will allow your company to go under. Make certain you always have a Plan B."

What's a stupid risk, and what's a calculated risk? When it comes to your business, only you can determine that. But if you're trying to figure it out, try following these five steps.

1. Determine the worst-case consequences of taking the risk. If you can't live with the consequences, then it's probably a stupid risk, and you need to hatch a contingency plan or retool the risk so the possible catastrophic results can be downgraded to at least just "bad."

2. Research the risk you want to take as much as possible. Wise entrepreneurs look-or at least glance-before they leap.

3. Seek advice. Whether you hire a consultant, discuss the risk with your employees, or talk it over with a friend and get some feedback.

4. Ask yourself: "Will I lie awake at night for the next several years, wishing I had taken this risk?"

5. Now ask yourself this question: "Is not taking a risk a bigger risk than taking it?" If the answer is yes, then what are you waiting for?

Next: Plan B »

Geoff Williams has written for numerous publications, including Entrepreneur, Consumer Reports, LIFE and Entertainment Weekly. He also is the author of Living Well with Bad Credit.

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This article was originally published in the April 2002 print edition of Entrepreneur with the headline: Game of Risk.

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