Sometimes people take risk wildly, seeming to actually wish to lose the thing being risked. Other times people seem so risk averse that they would have a very hard time accepting risk even if they realized that their very lives might depend on it. The most beneficial stance is to try to be neither risk seeking nor risk fearing, but instead try to balance and manage your risk-taking.
In the field of finance it is proposed that risk and reward
should be thought of as related: that, in general, the reward you get for
taking no risk is very low, and that only by taking and managing some risk will
you be able to earn a higher reward. As I have often told my students, the good
news about placing your retirement savings in the lowest risk investments is
that your return is nearly guaranteed; the bad news about that strategy is that
you will likely never retire, since the return you earn will not allow your
savings to grow to the amount you need to live on. You will have certainty, but
certainty of something that is not what you want. Only by accepting and
managing some risk can you meet your goal. This conclusion can be translated
into much of life.
But we don’t always tend toward a rational response to risk.
The first problem is that we don’t always accurately
understand the risks to which we are exposed. I used to have a picture hanging
in my office (a bank advertisement torn from a newspaper) of a man standing
fishing on the edge of what looked like an island. As you looked more closely,
you could see that what looked like foliage on the island was really a fin, and
he was actually standing on a giant fish—with his bait dangling in front of the
monster’s mouth! The caption read something like, “Risk: It’s not always where
you expect it to be.” That is true. The world is full of risk, and that is part
of life. It is so easy to work at avoiding one risk, but leave ourselves
exposed to another that may be less obvious but even more consequential: We
once had a babysitter who responded to being scared by turning on every light
in the house, but neglected to check the doors, most of which were unlocked.
And Oedipus famously tried to run away from risk, only to run straight into
what he was trying to avoid!
And then sometimes we are not willing to risk trading even a mediocre situation for an unknown, even if it might be much better. That is part of the reason, as Jim Collins puts it, “Good is the enemy of great” and is also behind the old saying, “Better the devil you know than the devil you don’t know.” The risks associated with change can be scary and off-putting.
A third problem is that we don’t always consistently execute
our strategy toward risk, even if it is a good one. Our natural tendency to
accept or avoid a particular risk may make it hard to execute a strategy: An
innate fear of heights might prevent us from crossing a high bridge we know is
safe, exposing us to the loss of whatever is on the other side of the bridge.
It is also possible that an unexpected diversion may momentarily cause us to fail
to execute our strategy at a key point. One of the things I love about
Saturdays in the summer is that my youngest son and I ride bikes into town for
breakfast. It’s a two mile ride, some of which is along a major road with a
skinny bike lane, beside which cars are going 45 miles per hour. He and I both
recognize the risk in this section and are careful to stay out of traffic.
Still, it is shocking how strong the tendency is to swerve around a stick or a
bump even though swerving puts us out of the bike lane and into the car lane.
Sometimes execution of our risk strategy may simply take
courage that fails us when we need it.
Whatever the reason, we often end up managing risk in a way
that is inconsistent with our plan—and the results can be tragic. Indeed, famed
playwright Arthur Miller defined tragedy not as when someone walks under a
falling piano, but when that person knows the piano is falling and walks under
it anyway.
A critical part of mature risk-taking is the ability to
accept the consequences of risk when they occur—which they will, even when risk
is taken responsibly. Doing something that has an 80% chance of success may be
your best option, but 20% of the time it will suffer failure. Accept that.
Learn from it. Never second-guess it. So often I see people or groups discuss
and accept a risk, but then complain and recriminate each other if things go
badly. As a leader, you will never foster an entrepreneurial team if it is
known you do not accept the periodic failure that comes with risk-taking.
Overall, you need to be intentional and rational about the
way you manage risk. Seek to understand risk accurately; honestly assess your
capacity for accepting various risks and their consequences (how would you
handle the worst case scenarios?). Seek to understand the rewards or potential
benefits associated with taking each kind of risk. Research indicates
individuals are generally not universally risk loving or risk averse—each
person usually has areas of his or her life in which they are risk loving and
others in which they are risk averse. Fashion a decision and exposure relative
to each risk—and to the total risk package—that reflects your tolerance for
risk balanced by the value of each reward to you. Manage each risk exposure
over time—if the risk changes, it is possible your exposure should too.
Risks need to be managed, but don’t be afraid to fly. Living
out and into the strengths you have been given require a boldness and faith
that may sometimes be difficult to muster. And great leadership absolutely
requires that. The action necessary to move forward and thrive can sometimes be
scary and the risks and pitfalls can seem overwhelming. But remember that a
bird could never fly if it first looked down at the ground and became anxious
about the possibility of hitting the ground instead of soaring. With risks
considered, we need to have faith in our abilities and take off, focused on the
vision and promise. The ability and willingness to do that has been behind
every great endeavor. That doesn’t mean we shouldn’t consider risks, or that
every flight will be successful, but we have to manage risks and learn to trust
our ability to fly.
One last parenting tip: Don’t try to protect your children
from the experiences and risks that helped you grow and made you who you are.
They probably also need them.
I end with two favorite quotes regarding the importance of
taking risk. The first hung on the wall beside my father’s desk throughout my
childhood and the second is an excerpt from a beloved poem:
Far better it is to dare mighty things, to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows not victory nor defeat.
Theodore Roosevelt
How dull it is to pause, to make an end,
To rust unburnished, not to shine in use!
As though to breathe were life.
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