How to Know If a Risk Is Worth Taking

We’ve all heard the dramatic stories.

We’ve heard the true tales of people who just had a feeling and decided to trust it. For example, the people who decided not to get on a plane because something in their gut told them not to, only to discover hours later the plane crashed.?

In life, we are instructed to trust our gut and believe in our instincts when it comes to our social lives, religious beliefs, and personal purchases. It’s okay to go against the norm—unless we’re talking about business.?

When it comes to business, we’re continually advised to check with the experts. What are the experts saying? What are the experts predicting? What are the statistics? The list of questions could go on and on.?

Hear me when I say this: Listening to the experts is a good thing. Doing your research is a good thing. Hedging the risks is important. Nevertheless, there may come a time when everything around you says… “Don’t do it.” But that little voice inside of you is urging you to take the chance.?

My approach to risk is simple: I start by evaluating the worst-case scenarios if we do take the leap. If it doesn’t work, how dramatic would the consequences be??

When I thought about leaving my job and starting Eastern Union, people warned me that it wasn’t worth the risk. They were right in the sense that leaving a cushy job was risky, but they didn't have all of the facts. The team I trained and ran did $6M of the company's $15mm in total fees. My total compensation was $300K, which worked out to be just 5% of the total revenue from my team. So, that meant even if I was 90% wrong in my idea to start my own business, and I couldn’t build a team of that size, I would still financially be better off. Thank God, we were able to build Eastern to multiple times that size.

I always follow my gut as long as the worst-case scenario is manageable while the upside is still great. If there’s a bigger risk, I don’t jump in without thought, but I also don’t let thinking become an excuse to avoid doing. I’m a big proponent of following your gut, trying different things, and then evaluating the data to see what’s working. I always have a plan, but I’m willing to try new strategies and pivot quickly.?

Take a risk. Measure the results. Pivot. Repeat.

Is it a gamble??

Let me paint a hypothetical for you:?

Let’s say you have a business operation that is breaking even, but it’s not profitable. You know it needs to be better, but you’re also scared of letting go of what you have because it is covering expenses.?

Get this—even if you don’t make a change, you’re still taking a gamble. There’s no “safe” path, only what’s comfortable. If the market shifts or your expenses change at all, the same old approach will quickly put you in the negative.?

In most cases, avoiding change saddles you with a little more risk than embracing the new.?

If you’ve ever played blackjack, you know it’s standard strategy to stand on anything 17 or higher. But what if you’re dealt the dreaded 16? Do you take the risk and hit? I can’t count the number of times in business it has felt like I’ve been dealt a 16. Those are defining moments!?

Most people assume it’s safer to hold and not take any action. Stick with the information you know. Here’s what many people don’t realize… There are always risk on both sides.

According to Ask Dr. Blackjack,

“If you hit on your 16, you’ll win 25.23% of the time, push 5.46% of the time, and you will lose 69.31% of the time. If you stand on your 16, you’ll win 29.01% of the time, push 0%, and lose 70.99% of the time.”

In reality, as you see from above, hitting actually helps you lose less.?

Take the leap…

Let’s say that you’ve been pondering purchasing an apartment building. You’ve weighed out the risks and what you feel you can get out of the property, but there is always talk about unknown variables that could sour a deal.?

You know in your gut that if you wait, it’s true the price may go down. However, the interest rates are rising, and you know that you are competing with others for the same property. Something inside you is screaming—It’s now or never!

“Life doesn’t always present you with the perfect opportunity at the perfect time. Opportunities come when you least expect them, or when you’re not ready for them. Rarely are opportunities presented to you in the perfect way, in a nice little box with a yellow bow on top. … Opportunities, the good ones, they’re messy and confusing and hard to recognize. They’re risky. They challenge you.”?—Susan Wojcicki, CEO of YouTube

If your gut says this deal is unique, now is the time, and you feel it makes sense, then go for it. At a certain point, you have to take the leap… Either way, you can be confident that you believe in yourself. You won’t live in regret or guilt because you went against what you believed and followed the piped piper instead.?

When hedged properly, the payoff is usually worth it

As described above, sometimes you’ve got to take the leap. Forget about everyone else and go with what you believe. It may pay off really big.?

Here are a few examples of businessmen who trusted their gut, and it paid off.

• Fred Smith has an insight into the transport business and, despite widespread skepticism, goes on to create Federal Express.?
• Michael Eisner hears a pitch for an offbeat game show and, knowing in his heart it’s going to be a blockbuster, immediately commits millions to developing Who Wants to Be a Millionaire??
• Robert Pittman has a vision of the future of online media while taking a shower and rushes to lead America Online in an entirely new direction.

In Closing

I live by two main mottos: live for today without sacrificing tomorrow (meaning take risks and make moves), and always move towards better than yesterday towards perfection.

So, create a plan. Analyze the worst-case scenarios and the risks versus the rewards. Hedge the risks as much as you can, do your research, but don’t be afraid to step out and try something new.?

Trust your instincts. Follow your gut. Believe in yourself.?

Don’t be afraid to take a risk. Your idea may go against the norm, and that’s okay. Sometimes to rise above the crowd, to stand out, you have to do something different. You can’t follow the status quo and expect the results of an innovator.?

The truth is…you won’t hit the bullseye every time, but that doesn’t mean you shouldn’t take your shot. I’d rather step out early on a new idea and learn as I go instead of putting it off forever waiting to get it “just right.”

In what ways has listening to your gut paid off for you?