How to Use Risk Correctly to Accelerate Your Success

Conventional wisdom says there's no shortcut to success.

Yet, if you're being honest with yourself, you spend some time searching for "that magic shortcut".

Whether that's making more money, losing weight, building your business, achieving that promotion you want, running a marathon, riding a century or some other goal you've set for yourself.

I don't know about you, but even through I know there's no real shortcuts I still find myself reading some pitch that claims they have the magic shortcut.

Don't beat yourself up over searching for that shortcut, we all are lured in by them.

The human brain is always looking for ways to avoid pain at all costs. It wants the shortest, least painful path.

Having said all that... What if conventional wisdom is wrong and there IS A SHORTCUT that actually works?

I've been thinking about that question lately. And you know what?

There is actually a shortcut available to you right now...Risk.

First a story of the risk shortcut used incorrectly and then THE EQUATION how to use it correctly.

A few years ago I met an entrepreneur at a summit where I was speaking and he pitched me on a kids game he had developed to help with learning new math and science skills. The guy brought his wife and young daughter to the summit and they were a happy couple.

As we were talking he proudly proclaimed that he was all in on this idea and he already quit his job.

That was the first alarm bell that went off in my head.

I asked again just to make sure I heard him right, "You quit your day job? How much profit are you making?"

He said, "Yes. I'm all in. We don't have sales yet but this game it great. It will sell."

Immediately I asked, "What's your personal burn rate and how much runway do you have?"

He responded, "I have about 6 months."

His wife and daughter are standing there and I'm getting a little concerned about dealing out some hard reality, but better now then when it's too late I tell myself.

Next question... "How much does this game sell for, what is your margin and what is your customer acquisition cost?"

He says, "It sells for $19.95 we make $12 on each one and I'm not sure on the customer acquisition cost (CAC) because we aren't selling it yet. "

I ask, "How many do you have to sell to make your monthly burn rate?"

He responds, "Ummm, I'm not sure."

"Ok, let's do some back of the napkin math. Let's assume your monthly all in personal burn rate (mortgage, car payment, insurance, food, etc, everything) is $5,000/month.

That means you need to sell at least 416 units a month. BUT, here's the problem with that math, it assumes you're selling direct, you have no CAC or other business expenses. So, let's just call it an even 1,000 units a month you need to sell.

HOW are you going to do that?"

Silence...with a stare.

You get where this is going.

Even when I asked for his financials, they weren't well planned out.

If you want to sell 1,000 units of anything just on the Internet alone you have to account for how many impressions you need to have, how many of those impressions turn into engaged users, how many of those click on your "ad", and how many of those add the item to their cart and how many of those carts actually check out...

Oh then you have to account for returns on a monthly basis to get to your net sales units.

Before I said my next piece of advice I asked if they really wanted to hear it.

They looked at me and said, "Yes!"

"The first thing you should do is go back to where you worked and ask for your job back. If they will not take you, spend 100% of your energy going to find a job.

Only after you find a full time job should you spend another second on this business because you haven't prepared correctly."

Giving that advice pained me, but it was the best advice because this entrepreneur was going to find himself in a really bad financial situation with this family.

This guy took the "entrepreneur risk", but didn't take it correctly.

Had he been single, twenty-one, and with a burn rate of $2,000 or even less I "might" have given different advice, probably not through.

The Risk Equation

Risk, in and of itself doesn’t yield rewards. It has to be used thoughtfully, within a highly-planned framework.

You need to control everything you can control because there are so many variables that you can not, that you need every little edge you can get.

Think of it like counting cards at Blackjack. Even though doing so gives a really small edge, it's the difference between winning and losing money over the long term of playing.

Your equation for taking risks that lead more often than not:

Success = Risk + Planning + Preparation + Persistence

There's an added benefit you'll get if you use this equation and that's LUCK.

You'll be making your own luck by putting yourself in a position with the best odds.

Turns out even taking a risk doesn't have a shortcut, BUT, if you do the work, that risk is much more likely to pay off :)

Colonel David Hackworth, a decorated Army war veteran once said,

"If you find yourself in a fair fight you didn’t plan properly."

Use risk the right way and you'll be putting the odds in your favor every time!

You're move.

P.S. This is one of several columns I wrote for this months EDGE email newsletters.

Some others that you missed because you may not be getting them via email:

• Why Going to "All Cash" when the Stock Market Goes Down is a Dumb Move in the Tax and Finance Strategy Column
• Be Realistic - Demand the Impossible. An impossible Story in An Edge Worth Sharing
• 5 Critical Blind Spots in Most Business Owners Financial Plan and Solutions in the Tax and Finance Strategy Column
• A Warren Buffet Investment Lesson That REALLY Makes you Think Twice Before Investing in Real Estate in the Tax and Finance Strategy Column

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