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5 Reasons Calculated Risk Taking Is Important In Business

It’s nearly impossible to start a new business or launch a new product without some degree of risk-taking, although a calculated risk is what an entrepreneur should always look out for in his business.

An entrepreneur is not necessarily a risk taker. Successful entrepreneurs know how to manage risk. Risk managers always pay attention to the odds of obtaining their payoff. Entrepreneurs, therefore, focus on maximizing their chances of getting the reward by minimizing the risks involved.

In this way, winning entrepreneurs can better be described as “risk avoiders” rather than “risk takers”. This kind of risk taking is what is referred to as ‘Calculated risk taking’.

A calculated risk is a carefully considered decision that exposes a person to a degree of personal and financial risk that is counterbalanced by a reasonable possibility of benefit. Assessing whether or not a risk is worth it involves careful cost-benefit analysis.

Calculated risk is an unavoidable component of business success, so it is wise to mentally embrace the idea before you even draft a business plan. Here are five reasons why you should take calculated risks in your business.

1. You can have an insight of possible results

For the majority of entrepreneurs, a risk is a case of ‘what if’ and is seen as a means of advancing their business in some way. Although, you can never be sure that a risk will pay off, a calculated risk can still give you a little insight to possibilities of the results.

2. Risk helps to distinguish between leaders and followers

Generally speaking, entrepreneurs take risks as it allows them to distinguish themselves from their competitors. In the competitive business environment that exists today, there are those who are willing to risk position themselves as leaders, while others get left behind.

If you take a minute to think of a leader who you consider successful, chances are that they changed the way things were done for the better, and put themselves on the line during the process.

This does not mean that all leaders take major risks on a regular basis, but it is safe to say that all leaders have taken at least one calculated risk in their career which has helped them achieve their current position.

3. Without risk there is no innovation

Innovation cannot occur unless there is an element of risk to begin with. Whether it’s a new product or a change to existing practices – these will both be considered a risk. When innovating, the level of risk can be mitigated by ensuring that all possible calculations have been made to evaluate whether it is the best option moving forward.

4. It is a chance to learn

Without risk, entrepreneurs will not experience failure and therefore will not learn from their mistakes. Of course it is possible to learn from positive experiences too, however, failure teaches us a very powerful lesson that tends to stay with us for life.

In addition, taking risks teaches us important skills such as how to calculate contingencies as well as strategic thinking and planning.

5. It gives you a competitive advantage

Since most people tend to avoid risk, those who are brave enough to take risks already have a competitive advantage. They are the ones setting the pace and leading from the front with new ideas, fresh offers, bold inventions.

Risk takers are the most adept at pivoting when the going gets tough. Simply put, when most individuals stay away from risk, that means less competition for risk-takers.

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