Good Business Instincts: 4 Tips for Balancing Risk and Potential

Business / Wednesday, January 29th, 2020

In many industries, some degree of financial hazard is part of daily business. This is especially true in this digital age. However, there is a difference between raw chance and calculated risk.

With a calculated risk, you weigh potential scenarios—the wins and losses, pros and cons—and consider the implications of each. A calculated risk means you act in an uncertain situation only after this sort of balanced deliberation. While this may sound theoretical and difficult to grasp, there are specific steps you can take to improve your chances of business success. Here are five tips for weighing risks against potential successes.

1. Take time for research.

You need to be thoroughly familiar with all facets of any deal you are considering. This is the foundation of any further research. It separates decisions with good potential from high-risk choices that are distinctly unwise.

After you are thoroughly familiar with the details, turn to a trusted business advisor for an outside perspective. This reliable mentor can help you objectively analyze the logistics and numbers so you can make a more informed decision.

2. Establish goals you can assess.

Long-term aims are good, but for calculated risks to lead to success, you also need to set shorter term goals that let you measure ongoing conditions. This way, you can quickly determine if a situation is becoming too risky before you lose a great deal.

For example, the 1980s property market in Florida saw large shifts. When now-successful property developer Aubrey Ferrao moved to the Sunshine State in 1980, the market was sluggish, so he focused on becoming a successful broker. As the real estate market began to open up, he transitioned to property development and in 1986 formed The Gulf Bay Group of Companies, which has developed numerous high-end properties in Naples. He was able to thrive in less-than-ideal business conditions by assessing the situation and setting manageable goals he could evaluate at regular intervals.

3. Be flexible and ready to adapt.

You cannot predict every unknown. Budget cuts, sudden economic changes, and natural events such as weather-related disasters are all beyond your predictive control. However, you can be flexible should an unknown development occur. In the event of unexpected circumstances, be willing and able to adapt your plans rather than bemoan your bad luck. Responding to sudden changes with “Why not?” rather than “Why me?” gives you a higher chance of long-term success.

Adaptability is also important in planning your project and looking for opportunities. For example, Aubrey Ferrao Fiddlers Creek came about because north Naples, Florida, was heavily developed and he saw opportunities in undeveloped south Naples. He made the most of this area and built a multi-acre luxury community.

4. Evaluate possible errors.

This has nothing to do with a positive mindset. Rather, it is about realistically analyzing negative scenarios and consequences.

  • If a project collapses, how will your company handle it financially?
  • If a project begins missing deadlines, how will you get it back on track?
  • If a business partnership breaks up, what will you do?

These and other questions are important points to think about before embarking on any venture, but especially chancy ones. This type of reflection is the other pillar, along with research, that prepares you to take a calculated risk rather than a wild gamble. If you uncover a lot of potential mistakes that could happen, you might want to file the idea away and turn to something else.

In business, taking carefully considered chances can lead to big successes. Stepping into the unknown can be frightening, but following specific steps can help you more completely consider advantages and disadvantages. Learning to take calculated risks is not only useful in business victories but for life in general.

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