This insight addresses the amount of risk you and your company are willing and able to tolerate over time.\u00a0 Most people believe that early stage companies should take risks aggressively because there is less to lose and much more to gain with each risky bet or decision.\u00a0 Common thinking goes on to address large, public corporations by expressing that the relative tolerance to risk is decreased, in favor of protecting the brand or financial health of the enterprise.<\/p>\n
Either way, as in a Las Vegas casino, the numbers of times risks are taken directly affect the average outcome over time.\u00a0 Take an extreme risk once, and you may win the bet. Your average is 100%.\u00a0 But for any sized company to continue to take major risks the averages will surely catch up and the rate of success falls to the mean, which we will assume to be 50% of the risks result in failure.\u00a0 Depending upon the size of each risk, this may be entirely acceptable, as in small bets at the gaming table.<\/p>\n
[Email readers continue here…]<\/em><\/span>\u00a0 But this insight raises the ante by addressing those risks that are game-changing, those that \u201cbet the farm.\u201d\u00a0 Occasionally, a CEO must make a decision that commits all of the corporate resources to a successful outcome.\u00a0 Using all of the company\u2019s cash and credit to produce a new product that is untested but shows every promise of success is one such bet sometimes made by CEO\u2019s of companies large and small.\u00a0 Automobile companies are famous for making such bets on cars that won\u2019t be on the market for 18 to 36 months from decision date, arriving at a time when gas prices and consumer preferences may have changed dramatically during that time.\u00a0 Some of those bets were unbelievably successful, such as the introduction of the Ford Mustang. Some were complete failures, such as GM\u2019s emphasis upon design and production of larger cars and SUV\u2019s even as consumers were voting with dollars for smaller, fuel efficient cars from foreign manufacturers.<\/p>\n We must assume that the auto company CEO\u2019s made their decisions to build based upon all available information, including consumer tests and market surveys.\u00a0 Many smaller companies just do not have the resources to do this in depth before committing resources which loom as massive to them toward a new product.\u00a0 Whatever the outcome, it is a safe statement that a decision-maker should commit major resources amounting to a bet of the business only when there is little alternative, that there is so much to gain that it overcomes the crippling loss that could occur.\u00a0 There are only so many times a CEO can get away with succeeding with such risky strategies.<\/p>\n","protected":false},"excerpt":{"rendered":" This insight addresses the amount of risk you and your company are willing and able to tolerate over time.\u00a0 Most people believe that early stage companies should take risks aggressively because there is less to lose and much more to … Continue reading