Successful Entrepreneurs Know the Difference Between Taking Chances and Taking Risks
To come out on top, build a process-driven company.
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An outsider might think that entrepreneurs take chances. That's simply not true. They take risks -- and there's a profound difference.
You're taking chances if you act on the assumption that everything will go your way, if you rely on variables that are outside your control, if you do not understand the fundamentals of the market you are about to enter and if you cannot measure your actions.
On the other hand, you are taking calculated risks if you perform reasonable due diligence before executing, you seek input from trusted advisors, you rely on experience -- not luck -- and if you can measure results against your plan.
Related: Here's How You Can Learn to Evaluate Risks Before Taking Them
The savviest entrepreneurs prepare for all possible outcomes. They anticipate what can go wrong, and they prepare for it. When the unforeseen happens, they adjust quickly.
Each entrepreneur's challenges are unique. That said, I have had the most success managing risk by infusing an intense focus on process into my business. I can trace most of my company's failures (and my own) to deviation from process. Often, this is caused by lack of focus.
Here are a few things I've learned along the way to create a process-driven company that enables me to take risk with clarity.
1. Forget about the complicated handbook.
Instead, let your team write the processes. Have your subject matter experts define best practices to execute successfully and mitigate risk. Keep it simple. Use checklists to supplement your process manuals. A one-page checklist beats 1,000 convoluted pages of process.
2. Do not become upset automatically when people fail to follow the process.
Ask whether the process was understood and properly communicated. Have we considered that the average American reads at a junior high school level? Yet many of our handbooks are written at a much higher level. People can be accountable only for what they understand. As our teams perform with greater understanding of process, the risk of execution-related failures drops dramatically.
Related: 3 Things You May Not Have Heard About Taking Risks
3. Update your processes regularly.
What makes sense today may not make sense tomorrow. In an environment of continuous learning, our processes are always evolving. Think of your process book as the place to institutionalize memory. As stated above, the unforeseen will happen. It's a matter of when, not if. The first time the event occurs, it is unforeseen, and you address it. If the same event happens again, then it is a process, management or employee failure. Ensure that your new hire integration plan allows plenty of time for process absorption.
When problems arise, it's tempting to ignore the small deviations and errors. If you have enough small deviations, it will build to a major failure. To manage risk, it's important to dismiss paying attention only to severe issues. Whether a failure created a minor problem or a large one is purely a matter of chance.
I have managed risk in my business by treating all process failures the same. By discovering the root cause quickly, we can understand what happened and develop measures to improve execution on our plan. When your plan is challenged, here are a few questions you should ask and steps to take to better manage risk:
- Describe the incident. What happened? How often has it happened?
- Investigate the incident. Assign cross-functional teams to investigate. Ensure the team produces documentation to support its findings. This may require meetings with people inside and outside the company. Outside perspectives are often helpful. If we are involved directly with a situation long enough, we can easily develop blind spots. Outsiders will not have the same blind spots.
- Investigate the process. What process was supposed to be followed? Was it followed? If not, specify where the process was not followed and why. As stated above, was the process properly communicated and understood?
- Define solutions based on the investigation. Ensure the solutions are both practical and highly tailored to the issue. Once the solution is defined, what is the plan for implementation and measurement of success?
- Communicate liberally. Too many companies share their successes and bury the failures. It's critical to communicate what went wrong and the solution with all parties involved. This is how you institutionalize knowledge.
- Document and review. Document the resolution in your process manual, and review at defined intervals to confirm the resolution has taken hold and that no course corrections are needed.
These simple steps will help you build better processes and a culture of continuous improvement. In the end, there's no better way to mitigate risk.
Related: The Greatest Risk Is Taking No Action, Says This Military Vet Entrepreneur
Entrepreneurs distinguish themselves by being able to manage risks in the face of uncertainty. There is an undeniable element of intuition and luck inherent in their decisions. When faced with these variables, most people will freeze. They will be afraid to take a risk, because they cannot distinguish it from chance. In contrast, an entrepreneur understands the variables and addresses those that he or she can control in a process-driven environment. The bases are not always all covered, but the known variables are controlled.