How Taking Calculated Risks Can Grow Your Business Taking strategic risks can attract success and distinguish you from the herd.
By Edward Fernandez Edited by Chelsea Brown
Key Takeaways
- Why entrepreneurs should embrace calculated risks
- How to calculate risks carefully
Opinions expressed by Entrepreneur contributors are their own.
Risk is expected in life, especially for an entrepreneur. And it's been my experience that risk tolerance plays a significant role in an entrepreneur's level of success across personal, professional, familial and spiritual areas of life.
As someone who has navigated through uncertainty as Founder, President and CEO of 1031 Crowdfunding, I've come to define and approach risk through a series of eye-opening professional and personal experiences, many of which have proven to be good learning experiences, some of which I discuss below:
Related: Entrepreneurship is a Game of Calculated Risk
How to calculate risk carefully
Not all risk is the same — as an entrepreneur, it's important to differentiate between unnecessary risk and calculated risk. Throughout my career, I have developed a strategic approach to risk management. Calculated risk involves making informed decisions in order to increase chances of significant rewards and growth. It's like a business owner who invests heavily in groundbreaking technology, anticipating future market trends. In contrast, unnecessary risks are like throwing darts in the dark, often leading to adverse outcomes.
In my role as a business leader, I scrutinize and plan for every possible outcome. For me, this involves analyzing market data, assessing potential outcomes and drawing parallels from successful precedents. It's a methodical process, much like an architect planning a skyscraper, ensuring each step is part of a carefully crafted design, rather than haphazardly constructing something without a floorplan or construction permits.
Taking risks early on can attract later success
My lessons in taking calculated risks were honed early in my career. Before starting 1031 Crowdfunding, I worked for another executive and, as a younger and less experienced team member, was not well-paid. To save money, my wife and I adopted a frugal lifestyle, sustaining our family on far fewer groceries than we can afford to enjoy today. This discipline was not mere penny-pinching — it was a strategic choice that gave us the buffer to absorb potential financial shocks. When the paychecks gradually increased in size, we gradually allowed ourselves more comfort. This discipline paid off: It was the financial bedrock upon which I built my current business. The bottom line here is that starting a new company was a calculated risk. I took a risk in venturing off to start my own company, and living a more humble lifestyle helped make that risk feel more calculated and careful.
When taking risks in your career, managing personal finances is just an example of how to be risk-averse and cautious. On a larger scale, in business, understanding your client's financial situation is key. In my line of work, knowing the investor is paramount. I stick to ventures within my area of expertise and partner solely with accredited investors. Before accepting an investment, I evaluate investor factors such as age, risk tolerance, asset preference and financial health. This due diligence enables me to best match potential investors with opportunities in fractional real estate ownership that align with their comfort and expectations regarding risk.
Related: Get Out of Your Comfort Zone, Take Risks and Run With the Big Dogs
Entrepreneurship is risky business, but faith helps calm the waters
While risk in business can be quantified and managed, faith doesn't lend itself to calculation. Yet, my faith has been a guiding force in my life, providing a psychological edge — a belief that there is a presence beyond balance sheets and business plans. Faith emboldens me with confidence and helps propel me to work hard and make smarter decisions. Good judgment and self-trust are the byproducts of this faith and are crucial elements that can contribute to making calculated risks.
Being an entrepreneur is not a path for the faint-hearted or the risk-averse. Rather, it's for those who dare to dream and are ready to back or fund those dreams. If you're comfortable in the herd, with the regularity of a paycheck and the predictability of routine, that's a valid choice. But if you're driven by the entrepreneurial spirit and willing to challenge the status quo, then embrace calculated risks. It's these risks that will set you apart, potentially elevating your business from mediocrity to success. Bear in mind that thriving as an entrepreneur is easier said than done and involves many mental and monetary costs.
No risk means no growth
In sum, calculated risks can be catalysts for business growth. They demand a clear understanding of your financial health, a respect for the risk appetites of your stakeholders and an unshakeable belief in your vision, supported by informed decision-making. It's a delicate balance, where one weighs the potential gains against possible losses, embracing opportunities that offer a tangible path to success.
Remember, every great business story is punctuated by moments when calculated risks transformed into remarkable achievements. So, as you plot the trajectory of your business, factor in calculated risks — they're not just gambles, they're informed decisions that could potentially script your success story.
Related: You Have to Take Risks to Succeed. Here Are 4 Risk-Taking Benefits in Entrepreneurship
