Being Overly Optimistic Can Be Dangerous

Hardy blog on fearA 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?

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Comments

  1. At this time it sounds like Expression Engine
    is the best blogging platform out there right now. (from what I’ve read)
    Is that what you are using on your blog?

    [Reply]

  2. You could definitely see your enthusiasm in the paintings you write. The sector hopes for more passionate writers such as you who aren’t afraid to mention how they believe. All the time follow your heart.

    [Reply]

  3. Marilyn says:

    I’m a extended time watcher and I just considered I’d drop by and say hello there there for your incredibly initially time.

    I critically enjoy your posts. Thank you
    You’re my role designs. Thanks to the article

    [Reply]

  4. Marsh Buice says:

    Darren, I took a huge risk when I was 25 years old. I suddenly quit my supervisor job at a casino to begin selling cars. My immaturity caused me to suddenly quit even though I was a single parent raising a 4 year old. Fear is a great motivator and the risk paid off. The hurricane blew the casino away (litterally) years later and I have moved up through the ranks and am now in management at the dealership I went to work for making making 5 times more than my casino salary. Ironically, my boss at the casino now works at a sporting goods store as a clerk.

    No war has ever been won by being complacent.

    [Reply]

  5. aderonke adesigbin-odetola says:

    As a medical personnel I have learnt to always read the labels.Getting too emotional about taking risk could mean taking a poison,by the time you realise what you have done you could be on your way to Intensive Care Unit.It is only sensible to take caution and weigh the risk.
    I always enjoy your writings Darren.Keep it up,you are a blessing.

    [Reply]

  6. Chris Bryant says:

    Someone mentioned having to conform to your environment, even when being optimistic.

    This movie quote sums up my attitude:

    “I don’t want to be a product of my environment. I want my environment to be a product of me.”

    [Reply]

    Darren Hardy Reply:

    Sounds like a good plan, Chris! Making sure you have the right people around you will surely help there: http://darrenhardy.success.com/2010/02/db10-support-systems/

    [Reply]

  7. Denny Rich says:

    I had a friend that was a farmer. He became very successful and in addition to farming also owned a couple of commercial buildings he rented. He told me when he first got started he had 40 acres surveyed separate from the rest of the farm and he called that “home.” He said no matter what happened… he never borrowed “venture” money on the home. He knew that no matter what, his wife and 2 boys would have a home to live in.

    Another thing he always did was take his family on a vacation every year. Even when money was tight during their early years, they always went on a vacation. My friend is gone now, but his 2 boys, who are my age still treasure those vacations and pictures.

    [Reply]

  8. Gerald Chadwick says:

    Hi Darren
    Good article as usual, you have a knack of hitting the mark. It’s an important question for me on taking risk. I’ve heard a lot on the subject, manly how men of power and wealth have had to take steps of risk that went against the main stream in order to be able to accomplish the things they thought were necessary.
    Some become doctors or other types with the intent of helping mankind and they risk everything to pursue there dreams but then later stop when life offers them a more comfortable life style and the risk become more than they would like to take. The same holds true with rich men who started out taking risk but would now rather play it safe and enjoy the riches they have gotten.
    I really enjoyed the article in this months Success on Amadeo Giannini the founder of Bank of America. Ever time I go by a Bank of America I’ll be reminded of his willingness to continue to help those around him. When do we stop taking risk? When we believe that the fight is over and the war against evil and unjustness is ended. Napoleon Hill had to take the risk against the advice of family and friends in order to do what he felt were right. Garneted, some have to be calculated risk but others are just your own gut instinct.

    [Reply]

  9. Ken says:

    Excellent, excellent advice. I’ve recently taken some risk by making a career change. What helped me in the process was the amount of time I took to make the final decision-almost 2 years. That may seem a bit slow but it was worth the investment. Time allows the emotional side of the decision to settle down.

    When I made the decision, I never looked back.

    I like Paula’s program but fried butter? Calculated risk or Rash?

    Thanks for the article Darren.

    [Reply]

    Darren Hardy Reply:

    Sounds awesome, Ken! Best of luck! :)

    [Reply]

  10. Gemechu Jemma says:

    Thanks a million Darren. This post gave me the confidence to take more calculated risks.

    I Found it to be important subject.
    all the best.

    [Reply]

  11. I don’t know if I should give you cyber hug, or handshake or invite for you for a coffee break or something..but goodness thank you for this article. Thanks for lighting a few bulbs!!

    -”Each one teach one”

    [Reply]

  12. Janelle says:

    I have a question that might not be related to this article, but is related to a comment someone posted on Facebook. It was suggested that one has to take risks to break free from mediocre and average. Once upon a time, I would have agreed with this statement, wholeheartedly. An entrepreneur at heart, I had visions and dreams of being my own boss, running a successful business that provided a service for others – and I did this for many years. But, now I am just tired. I have wrestled with the guilt of this for years, but finally had to close up, as the thought of marketing, advertising, keeping it all going just made me tired. Maybe I was in the wrong field? Right now, I dream of just working for someone else, doing my job and going home at the end of the day. This surprises me. ME?? A “worker bee??” How mediocre. How average. But… what’s wrong with mediocre? What’s wrong with average? As long as one is happy, right? It’s hard on my ego – so I am not an entrepreneur? Maybe I just experienced burn out and after a bit will rise up again. Who knows. Have you heard of this happening to others at all? Thanks. Janelle

    [Reply]

    Darren Hardy Reply:

    Janelle, one can find their passion and purpose in life not by only WHAT they do, but also in HOW one does what they do – the excellence they bring to the daily process… or WHY they do what they do – a belief in the mission of the business or organization they work for or even simply for WHO they do what they do for – the end of the means and the lifestyle, comfort and benefit it derives for themselves, their family, their community, whatever.

    Don’t let someone else’s standards of what is “right, good or significant” be yours. Only YOU know what brings you joy, fulfillment and significance.

    [Reply]

    Janelle Reply:

    Thank you so much for your reply, Mr. Hardy. I feel I have received a priceless consultation. Wow. I needed those words today!! Thank you! :) In my heart, I knew this, but my ego was upset I was giving up “owning my own business” and “being my own boss.” I start a new job on Monday and I am most enthused about it. I took my time finding a company I believe in and that I clicked with and I found one. I am taking a huge pay cut compared to what I “could” make when my business was thriving (which it wasn’t for the last year, so that point is mute anyway), but I realize a brief step down lands me on a path that will eventually go further and farther. For the first time in my life, working for someone else is not a chore to me. I am taking interest in the business and I am most excited to be part of a TEAM! :)

    What I most realize is that I have been chasing money all my life instead of excellence. I thought it was excellence, but it was really just money I was after and this proved to be most exhausting and unsatisifying to me. Now, as I join a team and an organization I believe in, I am chasing excellence. THAT is exciting!! Even saying it enthuses me.

    Thank you so much!!!

    Janelle

    [Reply]

    Darren Hardy Reply:

    KUDOS, Janelle!!!! And best of luck on your first day! :)

  13. Irina says:

    Hello Mr Hardy!

    I really like what you have written in your article. Because the first is a thought and the second is an action. We have to think over before saying or doing something. It’s the best way not to be wrong after some actions. But sometimes it’s very hard because we’re all human beings and our movements are stimulated by our feelings. Risk should be well-founded and don’t lead to crisis. So hard work and learning precede taking of risk. Without it taking of risk is like a crazy decision, which can lead to uncertainty as buying of lottery ticket. Sometimes our decisions can affect not only ourselves, but and other people whom we operate with. Therefore we have to be responcible for our decisions which include taking of risks. And as a result only calculated risk can lead us to success!

    Thank you for the article very much! I always enjoy reading of your posts)

    BR,

    Irina.

    [Reply]

  14. Jodee Bock says:

    Darren:

    Thank you for yet another thought-provoking and dialogue-inducing article! I always enjoy your way with words and thoughts and remember why I’m such a fan of Success magazine each time I read something you’ve shared! I started a blog a while ago called Riskful Thinking (as opposed to “wishful thinking”) and this article would be a great one to share there. I’ve not been as diligent with sharing information there, but I think this article might inspire me to revisit that one again! Thank you again for your inspiration!

    [Reply]

    Darren Hardy Reply:

    Please do share, Jodee! Just remember to give proper credit! ;) If you need my byline info, please contact maggie@darrenhardy.com and she’ll send it to you asap! THANKS!

    [Reply]

  15. Corey Jahnke says:

    Good Morning Mr Hardy!

    The greatest risk in life is the failure to plan and the failure to take action to implement one’s plan for success. 97% of all people seem to be under the notion that by doing “nothing” they will be safer. The fact is by doing nothing you are waiting for any of life’s natural tsunamis to rear up and wipe you out. By creating a clearly defined plan with logical action steps there really is no risk. There is simply the next step in the process. Of course we could “wish upon a star”, but that only leads to a rocking chair filled with what could have been!

    Have a magical day!

    [Reply]

  16. Travis says:

    Thank you, Darren, for some great wisdom about risk-taking. One thing that I am learning about risk-taking is that it’s important to know the people with which you are taking risks. I know that is impossible to know everything about someone and that people react differently when things happen but a bad parternship can also cause a lot of issues for you as well. I am currently in a multi-million dollar strip mall investment and we are seeing it first hand as we go!

    [Reply]

    Darren Hardy Reply:

    Great point, Travis! It all comes down to your ASSOCIATIONS! How are yours?: http://darrenhardy.success.com/2010/02/db10-support-systems/

    [Reply]

  17. Shaun says:

    Bad risk: When your confidence exceeds your competence.

    [Reply]

  18. kitetaylor says:

    Superior article…

    [Reply]

  19. Tom Carroll says:

    Darren:

    Malcolm Gladwell wrote an excepllent piece for the New Yorker called The Sure Thing. You might want to check it out. In his classic style, he refutes the romantic image of the classic risk taker like you advanced in this piece. Perhaps the real succedss comes from an ituitive risk management ability.

    Great post.

    Tom

    [Reply]

    Darren Hardy Reply:

    Nice tip. Here is where one can download the article: http://www.allianceofceos.com/documents/forum/2010-01-Malcolm%20Gladwell%20-%20The%20Sure%20Thing.pdf

    [Reply]

    Suzanne Reply:

    A great article, although I take issue with the term predator (one who preys on others or victimizes them) because Gladwell describes opportunists. Just because you make a good bet (like Paulson here) and some others make poor bets does not necessarily mean you took advantage of them or vicitmized them in any way. I don’t think you have to be a predator to be an entrepreneur, but you do need to be an opportunist and you do need to think for yourself and not be swayed by “social proof”.

    [Reply]

    Darren Hardy Reply:

    I agree Suzanne… but you know Gladwell likes to stir the pot and get people riled up. See it worked! ;-)

    [Reply]

  20. I like #3 – NEVER Bet the House. We should know how much we can lose before taking on any risk.

    [Reply]

    Darren Hardy Reply:

    Exactly, Harry! Just remember this from Harvey Mackay, “It doesn’t matter how much milk you spill as long as you don’t lose the cow.”

    [Reply]

  21. John says:

    I always enjoy your posts, this one did not disappoint as well. Even though the principles discussed are business related, the process applies to much more.

    I really like the “sliding scale” of risk depending on where you are in your life cycle. The problem with getting older and all of the responsibilities that come along with that is “inertia” (borrowed this one from Marshall). Sometimes even the most calculated risks appear to be “rash” as years of inertia have already occurred, the risk margin shrinks. Someone once told me….”measure twice, cut once.”

    Thanks Darren

    [Reply]

  22. Lynda says:

    I believe taking risks is the only way to really get ahead and succeed. I have learned the hard way that calculating my own risks MUST also include the what ifs of what is not in my control, i.e. the economy and the downturn in the housing market. I always thought I had the equity in my home to fall back on. Wrong! I wasn’t even looking. This was new to me and a huge lesson. I am starting over from zero, literally. I have a great plan, am in school and am on track to reinvent the second half of the rest of my life. You, Darren, and Success Magazine have been a good friend through all of the information you generously share with all of us. You have been a true mentor to me. Thank you.

    [Reply]

    Darren Hardy Reply:

    Great attitude, Lynda! Best of luck to you with your reinvention! Here are my 5 keys to keep in mind: http://darrenhardy.success.com/2008/08/5-keys-to-reinventing-yourself/ :)

    [Reply]

    Lynda Treadway Reply:

    Thank you so much…I study your website nearly everyday, you provide so many amazing tools. I appreciate your service to others. No wonder you are so successful. Have a great day!

    [Reply]

  23. Darren Hardy says:

    We also talked about this on my Facebook page last week. Take a look: http://www.facebook.com/DarrenHardyFan?v=wall&story_fbid=165287423494987

    [Reply]

  24. Sal says:

    I’m 33 years old soon 34 next month. At the age of 23 I took my first risk and began my adventure as an entrepreneur going into the real estate sales industry and 4 years later went into real estate investing.

    By the age of 27 I my net worth was well over $1million dollars and by the age of 30 my net worth dropped to negative $300,000.

    Why? I was young and dumb. Inexeperienced about tax consequences, worried about my image, and simply did not take calculated risk. Needed to have the big home, credit cards and new cars. My attitude at the time was all or nothing. I sure learned my lesson and it has taken me over 4 years to get back on my feet.

    My youngest is 4 years old and my oldest is 11 years old. Happily married and sure glad my wife understood my entrepreneur spirit. I now have a job and still have the entrepreneur mindset. However everything I do now is calculated.

    I believe you have to live and learn and keep the faith. Sitting on my butt will not get me anything I desire and want in life.

    Make it happen and Do it Now!

    Thanks for this article Darren.

    [Reply]

  25. Mike says:

    Another great thought provoking article Darren!

    When I think of risk, I tend to question “What is the opposite of risk”. It’s “playing it safe” of course…which I think has more inherent danger than risk. Think about all of the companies that have “played it safe” and “rested on their laurels”. What is the one thing many of them now have in common? Bankruptcy! They are no longer here as they did not risk to evolve with the times and the changing demands of a new marketplace.

    So, did the ancient greek goddess Nike have it right with “Just Do It”? On some level, I think so. But if you’re an optimistic sales guy like me, it’s always good to have someone you trust to assess the risks you’re taking…and make sure you aren’t betting the farm on something foolish.

    One final point. Darren, I grew up on a farm and I fully understand the warning label on the cattle prod! :) Having one of your “buddies’ sneak up behind you and light you up with a cattle prod can be a little painful to say the least! It ranks right up there with touching an electric fence!! (which is one of those risks not normally repeated!)

    Carpe diem!

    Mike

    [Reply]

    Darren Hardy Reply:

    Wow, Mike! Interesting adolescence you had there! Remind me never to visit YOU on the farm!!! ;)

    [Reply]

  26. Bob says:

    Great article, Darren. Without taking enough risk, we can die on the vine. If we take too much risk, we can get strangled by the vine:-)

    [Reply]

  27. Josh Bulloc says:

    I love the warnings. I have a feeling the warnings are there because someone tried those things at one time or another.

    Josh Bulloc
    Kansas City, MO
    How can I help?

    [Reply]

    Darren Hardy Reply:

    Without a doubt, Josh!!! ;)

    [Reply]

  28. Great post. My son who was a Recon Marine said although their missions were dangerous and everything they do is dangerous, they calculate the risk and take every precaution to avoid unneccessary risk. He is a good example, especially when driving, fast but calculating each risk. In business it is not just about taking risk, in several of your articles in previous issues many succesful entrepreneurs have said it is all a matter of knowing the risks and removing as many of them as possible to reach success.

    [Reply]

  29. UB says:

    Suzanne is absolutely right. Thanks for the points in the article Darren. Just like the “risk warnings” on products these ar4e life warnings.

    [Reply]

  30. Suzanne says:

    You can’t avoid risk in life, but you can manage it intelligently. We’ll all be dead within 100 years, so why not go for what we want while we are on this earth? The worst thing would be to look back on our lives & regret not taking a chance on something worthwhile.

    [Reply]

    Darren Hardy Reply:

    Nicely said, Suzanne! THANKS! :)

    [Reply]

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