Being Overly Optimistic Can Be Dangerous
A friend of mine went as Superman to a Halloween party this past weekend. He told me the cape had a big warning sign on the box explaining:
“WARNING! Wearing of this garment does not enable you to fly.”
Seem obvious? Apparently it isn’t. At the party several folks recalled news stories of young boys (and some men) who had tied a red towel around their neck and jumped off roofs or out of windows atop tall buildings, only to plunge like a rock to their death. There are times when being overly optimistic can be dangerous.
When I interviewed the country cooking queen Paula Deen (you can hear her interview on December’s SUCCESS CD inside SUCCESS magazine), she said one of the most important principles responsible for her success was learning how to take CALCULATED risks.
I think there is a great and dangerous myth promoted in America about risk taking: the idea of reckless abandon or blindly jumping off the cliff equipped only with the belief that a net will magically appear. People who do that are called insane and the outcome is usually tragic… and it happens far too often.
Other Inane Product Warnings:
“Do not use in shower.” — On a hair dryer.
“Caution: Do not spray in eyes.” — On a container of underarm deodorant.
“Do not eat toner.” — On a toner cartridge for a laser printer.
“Eating rocks may lead to broken teeth.” — On a novelty rock garden set called “Popcorn Rock.”
“Caution: Hot beverages are hot!” — On a coffee cup.
“Do not use orally.” — On a toilet bowl cleaning brush.
“Please keep out of children.” — On a butcher knife.
“Not suitable for children aged 36 months or less.” — On a birthday card for a 1 year old.
“Do not use for drying pets.” — In the manual for a microwave oven.
“For use on animals only.” — On an electric cattle prod.
“Warning: knives are sharp!” — On the packaging of a sharpening stone.
“Not for weight control.” — On a pack of Breath Savers.
“Do not use intimately.” — On a tube of deodorant.
“Caution: Remove infant before folding for storage.” — On a portable stroller.
“Beware! To touch these wires is instant death. Anyone found doing so will be prosecuted.” — On a sign at a railroad station.
“Warning: do not use if you have prostate problems.” — On a box of Midol PMS relief tablets.
“Not for human consumption.” — On a package of dice.
“May be harmful if swallowed.” — On a shipment of hammers.
“Do not use orally after using rectally.” — In the instructions for an electric thermometer.
Don’t get me wrong, I am a BIG believer in taking a risk. Nothing ventured, nothing gained of course. But there is a big difference in foolish risk taking and the calculated risk Paula Deen talked about. The distinguishing difference I think is often missed by commercial propaganda and our Hollywood saturated psyche.
As General Patton famously said, “Take calculated risks. That is quite different from being rash.”
To help you distinguish the difference, let me give you the five points on the Art of Taking Risks, something I shared on the Donny Deutsch show a little while back. I think this will be very valuable to you as you pursue your big hairy audacious goals and build your entrepreneurial ventures.
#1—Risk Is Good
Risk is not only good, it is essential. Risk is the variable that separates the strong from the herd. If you want to step away from average and mediocrity, you have to take risks.
Even nature gives us clues—in order to get the fruit, you have to go out on a limb to get it. I can testify it has been those times when I was willing to take a risk that advanced my success and allowed me to accomplish much more than my contemporaries, and take me to the next level of abundance and achievement.
#2—Swing for the Fences Early in the Count
When you are young and single it is OK to take bold and sometimes foolhardy risks. You are not that far off the starting line so having to go back to zero is not as costly. Besides, taking big risks when you are young and losing can be chalked up to paying the necessary price of entrepreneurship tuition. I know I paid more than the cost of a Stanford Ph.D. in tuition to earn my entrepreneurial wisdom.
#3—NEVER Bet the House
When you are older, wiser and have the livelihood of a family on the line, you need to be smarter and more prudent with your risk choices. NEVER go all-in at the risk of your family’s wherewithal. Here is the key: Instead, carve out a certain percentage of your assets, say 20-30 percent, in the pursuit of a better future. The foundation and stability of your family is priority No. 1.
Google Founders Larry Page and Sergey Brin said, “We took huge risks when we had no cash. Now we have all of this cash and we take few risks.”
#4—Stick to What You Know
This is one of the best pieces of advice I can ever give you when it comes to taking risks. Most every time risk bit me is when I took a risk on something I had no business taking a risk on. I got crystal clear on this from Warren Buffett. He said his No. 1 business philosophy is he never invests outside his core competency. If he doesn’t understand the business or marketplace he stays away from it, no matter how alluring it might be.
I learned this the hard way. I once invested in an oil well in Louisiana, bought ownership of a jazz band, and funded the production of a country music album, and several embarrassing others—all complete failures. I had no business in those businesses.
When you don’t know the business or marketplace you don’t even know what you don’t know. You don’t even know the right questions to ask or whom to ask. You have no idea where the trap doors and landmines are. You cannot add the “calculated” part of the calculated risk equation if you don’t even know what to calculate.
#5—Eliminate the Risk Altogether… or at least most of it
You will find the greatest “risk takers” in our society actually take the fewest risks of all—Warren Buffett, Steve Jobs, Microsoft, Google, etc. If you learn about their risk assessment and planning process, you will learn they ultimately figure out how to ensure there is as little risk as possible in their strategic moves, even if it appears on the outside as extremely risky.
For example, one of the greatest lessons on risk taking I learned from what people think is one of the most brash risk takers of our times—Sir Richard Branson. Now Branson has of course taken some incredible risks in his ascension to multibillionaire status. And some have turned out to be colossal busts. But he has done it smartly, or as Paula Deen and General Patton describe it, he has done it calculated.
During some time we spent together, when asked about taking risks, this was his answer, “Always protect against the worst inevitability—protect the downside.” He said, “Don’t make being wrong have you end up living in your car.” When asked for an example he said, “First of all I never risk the main business for the sake of a new venture. That is why each Virgin brand is a separate business. No new business will ever put any existing business in jeopardy—that is my first discipline. Then in each new risk I build in an out.” He said, “When I started Virgin Airlines I started by buying only one used 747 from Boeing. Part of my contract was that after a year if it didn’t work out, they would agree to buy back the plane from me. That ensured if it didn’t work out I wasn’t really risking anything, just the time to see if I could make it work.” Interesting isn’t it?
So, quick recap. Risk is good. The more you have at stake the more prudent you have to be. Never bet the house, or as Branson put it, don’t make being wrong have you living in your car. Stick to what you know, and through thorough due-diligence and structure, eliminate most of the risk out of the deal—be prudent and calculated in your risky moves.
Share your risky business stories in the comments below: What’s the best risk you’ve ever taken? What’s the biggest risk you took, lost and what did you learn? What is your risk assessment process?