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How Entrepreneurs Manage High-Risk Situations.

Byline: Sangeeta Bharadwaj Badal, Ph.D. Adapted from Entrepreneurial StrengthsFinder (Gallup Press, September 2014)

Synopsis: Highly successful entrepreneurs aren't risk seekers -- they're risk mitigators. If you are have the Risk-Taker talent, you instinctively know how to handle uncertainty.

Contrary to popular belief, highly successful entrepreneurs are not risk seekers, they are risk mitigators par excellence. If you are a Risk-Taker, you instinctively know how to manage high-risk situations.

When encountering a challenging decision, you take an analytical approach, meticulously gathering as much information as you can, weighing all the options, and assessing everything that can possibly go wrong. Replacing emotion with a rational thought process helps you overcome fear, calculate your odds of success, and then decide whether to assume risks, such as committing resources to new projects, introducing new products and services, entering new markets, or investing in new technologies.

You tackle uncertainty and risk by working hard to collect every bit of information possible. From tracking past performance to number crunching and creating what-if scenarios, you determine the least risky solution to your business challenge. Your investment in acquiring information helps you make smarter choices so you can be ultra-confident about the outcome. Once you are certain of your choice, you are willing to put everything on the line for it. To an outside observer, this behavior may seem risky, but to you, the decision is well-thought-through and thus carries no risk.

Risk-Takers are avid problem solvers. Your love for what you do and an intense desire to succeed keep you motivated to spend long hours working on a challenging problem. You solve problems analytically. Consequently, you can see patterns and make connections between seemingly unconnected phenomena. This gives you the ability to recognize opportunities and take advantage of market gaps before your competitors do.

As a Risk-Taker, you have a belief, sometimes exaggerated, in your ability to control the destiny and future of your venture. This internal locus of control motivates you to take action when things are not going well. You are quick to pursue alternative options when you encounter setbacks. Your will to win remains undiminished even after a painful defeat.

A word of caution: Some extremely successful Risk-Takers hold themselves in high regard. This phenomenon is known as hyper-core self-evaluation (hyper-CSE). An extreme positive self-assessment can lead these entrepreneurs to overestimate their ability to manage risk, underestimate the capital required to launch new (read: risky) initiatives, and underestimate the uncertainties or potential perils in the external business environment.

If you are a hyper-confident entrepreneur, you are certain that you can do no wrong and that you can resolve all problems if a decision turns bad. You are likely to engage in impulsive or uninformed risk taking, are less accurate in your forecast of success, and are more likely to persist in pursuing strategies even when they are not delivering the results you hoped for. In addition, hyper-CSE may lead to "shiny new object syndrome" -- when you invest in multiple projects, overestimating your ability to get positive results from all of them, and in the process, end up hurting your core business.

Make sure to evaluate an opportunity rationally and thoroughly before taking action. Get feedback from people in your circle of trust. Take your time deciding which projects build on your core business and which are likely to take you off course. Keep the former, and get rid of the latter.

Risk-Taker in Action:

Bill Gates on Warren Buffett: "Warren doesn't outperform other investors because he computes odds better. That's not it at all. Warren never makes an investment where the difference between doing it and not doing it relies on the second digit of computation. He doesn't invest -- take a swing of the bat -- unless the opportunity appears unbelievably good."

Jeff Bezos, founder and CEO of "Ninety-plus percent of the innovation at Amazon is incremental and critical and much less risky. We know how to open new product categories. We know how to open new geographies. That doesn't mean that these things are guaranteed to work, but we have a lot of expertise and a lot of knowledge. All of these things based on our operating history are things that we can analyze quantitatively rather than to have to make intuitive judgments."

Andy Dunn, co-founder and CEO of Bonobos: "Prior to a lobotomy I just underwent which removed shiny new object syndrome (SNOS) from my brain, I was both an asset and a threat to my own company. The company is trying to do one thing, and I would come up with another. I can't tell you how dangerous this is. If the founder doesn't know what the company is doing, the company won't either."

Maximizing Your Risk-Taker Talent:

This article is part of a series on the talents of successful entrepreneurs, adapted from the book Entrepreneurial StrengthsFinder(Gallup Press, September 2014). Learn more about the book | Learn more about the assessment
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Publication:Gallup Business Journal
Article Type:Survey
Date:Nov 21, 2014
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