Risk

"Don't do that, it's too risky."

In business, people spend a great deal of time and money evaluating risk. It's one of those things they teach in MBA school.

But are we looking at risk in the right way?

According to the American Bar Association, there were 1,143,358 resident and active attorneys in the United States in 2007 (the most recent data I could quickly find). That's over a million people, many of them advising businesses on what to avoid because it is risky.

They lawyers say things like: "Don't let people blog and tweet because they may say something that gets the company in trouble." As I wrote last week, lawyers clamping down is especially true in highly regulated industries.

From the legal perspective, saying "no" might make sense (it avoids lawsuits). But thinking about risk in totality (instead of just what the lawyers think) is saying no the right way to do business? Frequently the businesses and the people saying "yes" to risk are the ones that succeed.

When the perceived risk is low, we tend to do okay evaluating a situation. Yes, it is risky to fly to the business meeting (the plane may crash) but we figure the risk is worth taking.

But when the risk seems high (starting a business or quitting your job to go freelance) we are unable to accurately evaluate the risk.

I think this is because we humans fail to evaluate the risk of staying the course. We don't evaluate the risk in *NOT* starting the business or keeping the job at the big company.

How's that big stable company working out for you?

Perhaps your parents advised you to get a degree from a good university and then work for a nice, stable, well-known company. We're told that is the least risky path. But is it?

If you worked for Lehman Brothers or Washington Mutual or Enron or your company had to downsize or your division was acquired or manufacturing moved to Laos or your boss thought you were too smart and therefore a threat or the company moved to Atlanta or you hit 50 years old or any number of other scenarios - BOOM - you were out of a job. Unemployed.

When you put yourself at the mercy of an employer, you have significant risk. When you work in an industry in decline, you have significant risk.

The flip side of risk

In my experience, people fail to evaluate the risk of taking the opposite course. They look at risk without thinking the problem all the way through.

What is the risk of *not* starting your business this year?

What is the risk of *not* letting your employees communicate via Facebook?

What is the risk of *not* taking a few years off to travel with your rock band?

What is the risk of *not* learning that new skill?

What is the risk of *not* quitting your job and going freelance?

Consider the opening line of this blog post again: "Don't do that, it's too risky."

Maybe the better statement is: "You had better do that, because it's too risky not to."

photo credit: postaletrice via photo pin cc

Comments

[Hzhealy]

Somewhere along the way, I jotted down the quote: Are you going to be safe and be good, or are you going to take a chance and be great?

Staying safe happens so often because it can be hard to convince others to take a risk especially if you are yearning to do so within the confines of a conservative organization.

[David Meerman Scott]

Hzhealy - I love the quote. Many thanks for sharing.

[Daniel Rojas]

I couldn't agree more with your post. I live in Colombia and recently our government approved a regulation about companies' workers doing their job from home. This law allows employees to have the same rights as they were working at the headquarters. The point is, here in Colombia most organizations are afraid to send their people to work from home because they still think they will be occupied in personal matters instead of dedicate the full day to do their job. Despite they know that people working from home is cheaper for organizations than having all of them at the office together (and don't forget about saving costs for transportation, quality of life, etc.), the prefer not to implement those kind of initiatives soon. So, the risk of not trusting people may be countless. How risky it is for them not to do this? Mi twitter account is @derojasm, I'm following you.

[Badanforth]

David, I learned this the hard way-and I'm starting my own marketing strategy consulting business this year. Being one to advocate change in a conservative company never made me popular, and increased my personal risk tremendously-status quo is very powerful. Conversely, I think by being even more aggressive advocating change and showing how to implement it, and then marketing across many companies should really minimize MY personal risk and allow me to contribute a greater amount to more comanies. Thats my theory at least-we will see how it works out!

[David Meerman Scott]

Daniel, part of the perceived "risk" at companies is about trust. It is risky to trust employees instead of just doing the easy thing and making many rules and regulations.

Badanfoth, That's the path I have taken. I worked for companies for about 15 years and for the past ten I have been on my own for the reasons you cite. Good luck with this stage of your career.

[Biasforaction]

David, This comment may be a little off the mark but your post piqued my interest as I've been thinking about risk lately. I believe the quote "if the risk is great, so is the reward" though I'm not sure who said it. I also understand you are referring to personal development. But aren't there "risks" inside companies as well. Weren't the "hedge" managers at JPMorgan trusted / taking personal and corporate risk for great reward? or would the "risk" have been not taking the questionable chances they did? They were clearly trusted to make the call so where is the error? In the oversight by the government, the company, the individual? Balance of risk and responsibilities must be considered - I'd love to follow U2 around on tour however my happiness would be at risk with my family.

[Tony Faustino]

David, after reading your list of "the flip side of risk" and your concluding sentence, I thought I'd contribute this quote by your friend and colleague, Seth Godin (from Purple Cow):

"Safe is Risky."

[Blfarris]

There are a number of situations where people fail to look at the flip side...

That software/equipment/engagement is too expensive! -- But how much is it costing you to not have it? What's the opportunity cost?

If I offer training and development to my team members they will get smart and leave. - You you'd rather have them remain dumb and stay?

If we do it like everyone else (buy IBM, hire a big name consulting firm, etc.) then we're safe. -- and you will get the same results as everyone else. Is that safe?

I wonder what it is about humans that makes it so hard to see the costs of non-action?

[David Meerman Scott]

Biasforaction - The risks that financial traders make is actually their job so it is a little different. They assume the risk on behalf of the firm and the reward is a bonus and the personal risk is that they get fired. I think that is different than other jobs. If you REALLY wanted to follow U2, you could make it your job. For example, I love the Grateful Dead and wrote a book about the band and have had many exciting interactions as a result. While not a full time job, I have turned my passion into part of my income stream. You can too.

Tony - YES. Safe is very risky.

Blfarris - Excellent point on hiring the same consulting firms as everybody else.

[Raúl Colón]

For years I worked in the IT Security field doing IT security risk assessments to help regulated companies decide where they needed to invest in protecting their key assets.

Funny enough with many risk professionals they would only see the negatives and how it would impact them. I rarely saw the evaluation that was a 360 view.

Now that I am helping companies communicate online my background in IT Security and Risk Management helps me comfort them in trying new things by giving them as many scenarios on the positive and negative side as possible. And guiding them into how you ended this post there is probably more risk if no action is done.

Analysis Paralysis is the biggest risk I see in small and large companies.

[Doug Sanborn]

If you limit yourself to what the lawyers approve - you'll do nothing.  In today's world, doing nothing pretty much guarantees failure.  

Don't get me wrong, lawyers can be very helpful in accessing a new venture, policy, etc.  But you hand them a veto card at your own risk!

[David Meerman Scott]

Raul - Exactly. When given an opportunity to evaluate risk, the results are frequently one-sided.

Well said, Doug. Thanks.