The question, “is it worth it to take a risk?” is a common one.
In fact, taking risks might be a good strategy to set oneself apart from the competition.
If your peers are afraid of failing, your willingness to take a chance could present you with an unrestricted opportunity.
Furthermore, taking chances teaches you important lessons whether you succeed or fail.
But does taking risks generally result in success? The following elements determine the answer:
It’s typical to hear that if business owners want to succeed, they should take more measured risks.
In reality, several billionaires have used risk to build their personal brands; Richard Branson, for instance, frequently talks about the chances he took when he was younger and exhorts young people to follow in his footsteps.
The significance of taking risks in a “calculated” manner.
To begin, it is essential to keep in mind that taking obvious risks does not usually result in fruitful outcomes.
Instead, successful businesspeople tend to take risks in a way that minimizes the amount of money they might stand to lose.
According to what was stated in the book Entrepreneur by Leonard C. Green, “Entrepreneurs are not risk-takers. They are not afraid to take prudent risks.
According to what Green had to say about the topic, “the distinction between risk-takers and calculated risk-takers is the difference between failure and success.”
In other words, calculated risk-takers may not play roulette because the odds are stacked against them, but they may be receptive to playing blackjack because clever play can tip the odds in your favor.
Smart business owners also look for ways to reduce risks. Whether it’s by getting insurance, safeguarding their websites from hackers, or completing a risk assessment of their company.
The significance of “survival bias”
What, then, are we to make of all the successful entrepreneurs who attribute at least some of their success to risk?
Because humans are prone to survivorship bias, the evidence they provide is frequently insufficient to demonstrate the effects of risk-taking.
If you decide to take a risk, you do so because you believe the risk is worthwhile. It is worthwhile to take risks in order to obtain what you desire in life
In my opinion, taking a risk can be beneficial when it pushes you outside of your comfort zone and helps you attain a healthy objective. This is possible with much calculated risks.
Taking risks, on the other hand, might have major negative repercussions for our health, relationships, or education. Especially when you take risks without putting all factors into due consideration.
But what happens if you take a risk and then fail? Is it worthwhile?
Taking chances is what makes our life more precious and provides us more memories and experiences to pass along to future generations.
And for some, this means living a meaningful existence.
However, we should not take chances haphazardly. What we should do is to take calculated risks.
Because what happens when we take a chance and fail? Of course, we gain valuable experiences, but what if we could do so by regulating the risk we are willing to take? Wouldn’t it be great?
Before you take a risk with your money, ensure you know about your personal finance very well.
So, how can we take a calculated risk?
We need other plans in place before we can take regulated risks.
This is critical in order to take controlled risks because if you take the risk and fail, you must be able to continue from where you are now.
So, how do you go about doing this? I’ll demonstrate by imagining a scenario for you. Thus, you will understand how to take regulated risks, and you will be more likely to take risks because you will know that if you fail, you can continue from where you are at the moment.
Assume two students who graduated from a university with plans to further their studies abroad.
These students already have their complete school fees as a graduation gift from their parents.
One of them chose to invest his money into a get-rich quick platform with hopes to get it back in time. His expectation is to have enough money to take care of his fee and every other life expenses while studying abroad.
The other student spent part of the money acquiring skills while applying to different post graduate schools abroad. In his calculations, he drew the following possibilities:
- That he should be able to make initial deposit with the balance in his account.
- He will apply for a graduate-assistant position to reduce his fee. OR
- He should be able to work as a student with the skills he is acquiring, earn some money and complete his fee.
Now let’s take a look at the possible outcome of the risks these two student are taking.
- The two separate students were not able to secure any admission abroad for their studies.
The first student was not able to recover his money from the platform which turn out to be a scam. Losing his money and not securing admission will take him very much behind where he was before.
The second one searched for job with his acquired skills and continues with his life.
2. They both secured admission:
Now the first student cannot make payment for his studies because he got his money tucked in an uncalculated risk.
The second student has enough money to make initial deposit, move abroad and follow his initial plans.
To take a risk can be likened to the sword with two sharp edges. One side cuts good things while the other cuts bad things. What you can cut depends on the side you are holding and the strength of your grip.
In this case, your thoughts and proper calculations determines the outcome of the risks you are willing to take.
See this related article on investment and risks.
The distinction between “risk” and “uncertainty”
We must also evaluate the distinction between what we regard to be “risk” and what we consider to be “uncertainty.”
Both ideas describe a situation with an unknown result, but as economist Frank Knight puts it, “the important reality is that ‘risk’ signifies in some circumstances a quantity capable of measurement, while in others it indicates something obviously not of this type.”
“There are far-reaching and critical changes in the bearings of the phenomenon depending on which of the two is truly present and acting,” He continued.
Risk can be thought of as a distribution of known probability.
When you shuffle a typical deck of playing cards, you know you have a 1 in 52 chance of drawing the king of hearts.
The chances of drawing a heart card are one in four. From there, you may compute the other probabilities and place bets in a way that corresponds to the risk you’re taking.
While I will not discourage you if you wish to take a risk, I will strongly opine that you do due diligence to the possible outcomes of the risks you want to take.