Taking risks

Calculated risks

Before taking a business risk it needs to be calculated.
▪What is the upside?
▪If it goes wrong, willl you loose all of the investment or can it be sold for a smaller loss?
▪Will the investor be ‘rolling the dice’ many times so on average they should be okay if the odds are good?

For example:

A person buys a watch for $1

▪60% chance they will double their money.
▪40% chance it will not go well that they can sell it at a loss for 50 cents

The maths for this is:
▪$1 x 2 x 60% = 1.2
▪$1 divided 2 x 40% = 0.2

So the total is $1 and forty cents, which is of course more than $1 and so this risk is worth taking.

Bookies make money by the odds adding up to more than 100 and making a profit on that.

For example:
Three horses, for each one the bookie pays out double money on the payout if they are chosen and win.
▪Betty
▪Bobby
▪Sam

3 customers each bet $1 on a different horse.

So if a person bets on Betty and it wins then they get $2.

However the bookie received $1 per horse, so $3 in total so has made $1 profit.

If more people bet on a particular horse the payout goes down to ensure a profit is made whatever the situation.

This is also house insurance companies make money insuring risks.

A gambler is a person who takes a bet without having calculated all the odds, this is normally caused by:
▪greed
▪desperation
▪ not having calculated the odds of winning for all the players in the game and adding them up.

Reasons people not take risks

People are scarred of being thought of as a fool, but it is better to be seen as a fool for righteousness’s sake.

You should always be ready to take a calculated risk, to succeed you must have courage and bravery with the risk of failure.

When there is something at stake the mind looses certainty, the bigger it is, the more uncertain they become. For example if they could loose lots of money if wrong, a person becomes uncertain and unsure, even with something really basic, that without that possible loss, they would be certain they know the answer to.

A physical example is walking along a thin path that is easy and normally would know could do, but if a 1000 metre drop beneath it, then less sure.

Having more at stake actually makes people’s performance get worse and not better, as they are so concerned and worried.

Employment and self employment

Most people are employed because they do not want to take a risk and would rather have to security of a steady salary. They may make less money as a result but have the security. This is similar to how people pay for insurance policies, they have less money but gain the security.

To attract and retain staff, they need to feel secure in their employment with you. If they feel insecure, they may take your customers, staff and intellectual property to start their own business. They may also go elsewhere for a job.

If someone is going to start their own business, they will probably steal your staff, customers and intellectual property. If they steal customers and staff, going to court and other things is rarely effective . If they steal your intellectual property, it is also very expensive to go to court. James Caan says it is best to encourage them and offer to help all you can with their new business, such as offer to invest in their business, use some of your staff, your systems and so on. This means they will want to keep on side with you because you are an asset to them. Also as it is their business, they will be highly motivated and your investment could make a lot of money.

How to make big money

The big money is made by people who take the risk, they can employ many people and make a profit from the work of all those people. However of course this is not for everyone as most people prefer security.

For example, as an accountant a person can earn $40 000 per year. For the security of being employed they are fine if the company employing them makes $5000 per year from their work.

So a company with 500 accountants will make $2 500 000 per year.

Big risks

To be successful a person has to take risks and try new things, otherwise they will be left behind by the others that do. Successful racing drivers often die because they try doing the corners at speed, from this they learn and get ahead. However they pay the price for their success with these risks, it is a choice they take. Those that do not take these risks do not get to the top because of the others that have.

Nothing to loose

The people who are most creative and come up with the best things, are often those that have nothing to lose. Without this they may not have taken such a risky path.

They are happy to try new things that may not work, because as they have nothing, they are not scared of it causing a loss to whatever they have. For example loosing their reputation is not a problem if they have done nothing better before which gained them one.

The person with a reputation can loose it, if the new thing performs less well. They will no longer be known for their last thing being a success, if they now do something which is a failure. As a result people may stick with the old thing, even if it will become out of date, not relevant to a changing world, improving world and not be the best it can be as they now have learned more and have new and better views and ideas.

The person with nothing can only gain, there is nothing that can be lost.

If it does not work, they have not lost anything and if it works they only have to gain.

Also having nothing, means they have nothing and want to have something. The person who already has something, does not have so much to be gained from trying.

If a person is unemployed they have only to gain by starting their own business, but an employed person risks their current income and security by trying something new.

The only way someone with previous successes can stay great, is by risking everything by trying out their new ideas and what they now think is best. This means risking everything.

How to take big risks

Do it in a way that is not in danger your existing activity. For example try with:
▪ a new brand, so if it does not work does not in danger your existing one.
▪ a new location when your existing business does not trade.
▪ a different limited company/corporation, so it cannot affect your existing one.

Do the smallest possible test just to see if it works, you will never make any money from the test, it is purely to test if it works without the risk of damaging the old business. Once you have found that it works and the idea has been refined, it can be done on a big scale as you know it should work.

Stick to what you know

If a person sticks to what they know and who they know, they should not go for a walk.

A person may have a feel and experience for very few markets, but that is fine and they should stick with those industries. It is more important for a person to know what they do not know, than know what they do not know. Most people only know a very small area. This is because they know where their talents lye and are successful because they focus on just one thing.

Learning

When a person cannot do something, they have to learn. They have to try many times and will fail until they learn how to do it.

If a person only does things that they know they can do as have done it before, or already know know to do, then they are not learning and will not grow.

This is just like how a baby falls over when learning how to walk. Learning comes from practicing and repeated trying, not just from study.

“You can succeed only if you fail, and failure shouldn’t be seen as a black mark, it should be seen as a war wound. You’ve had a go, learnt from you mistakes, and now you’re going to try again.”; Dan Wagner, entrepreneur.

Many of the great and winning motor racing drivers die in car race crashes. The cautious ones are never so good and do not learn so much, so do not win the races. They take each corner more slowly and do not win. Of course a person has to decide how valuable the achievement is to them for them to take those risks.