Most People's Relationship With Risk Is Wrong

"In a world that's changing so quickly, the biggest risk you can take is not taking any risk" - Peter Thiel

September 18, 2021.

A month earlier I had just finished getting a nanodegree in AI Product Management, spending the rest of my savings as a broke college student to do so. When I first signed up for the course I thought it was my ticket into Product Management. More importantly, this was how I would start working with AI.

On this day in September though, anxiety crept into every aspect of my life.

Turns out there wasn't a lot of companies hire Product Managers fresh out of school. Especially, ones that didn't know how to code. Plus, AI was relatively unheard of about outside of more niche communities.

I had just come back from a meeting where more than half my peers already had full-time jobs. I skipped our schools career fair because there was no startups or product jobs offered there. On this day, I felt significantly behind.

I was banking on getting a job my university didn't even offer classes for...

The ability to live with this uncertainty and ambiguity was causing me to worry about things outside my control.

"Maybe I should just go apply for a job at P&G", I said to my friend, "at least then I'd know I have a job to fall back on."

His response changed my relationship with risk forever...

He told me, "Some people take reckless risks their entire lives, they just don't realize it. You and I both know you don't move ahead by doing this."

What is he talking about I thought.

"Many have already missed their golden ticket", he continued on, "they're too afraid to make a decision when big things are on the line. People make decisions as they come and often those choices carry huge risk hidden by our bias for the status quo. Change doesn't exist without calculated risk. Think of your life has a startup. Why should you be afraid of the risk in not getting a job immediately after school when founders don't fear getting customers when they first come up with an idea?"

This was a lightbulb moment. Operating in the future is intentional risk (you don't know where it will go). But you're faced with a choice:

  • Back down and allow your vision to dissipate
  • Move forward and learn from the experience

My friend told me to try fear setting, and if the worst thing that could happen is beyond repair, only then I should reevaluate my decision to pursue this career.

So I went home and that's what I did. After finishing, I called my parents and let them know that I was committed to finding a job on the product team for an AI company. Even if it meant living at home for a while after graduating because I was still searching.

Fast forward, as I am writing this that outcome never happened. 7 months after this, with lots of failed interviews and conversations under my belt, I got a job doing exactly what I wanted. Taking the risk paid off even more so today as AI has become all the rage.

Failure is caused by poor risk management.

An entrepreneur always takes a risk in starting a business. They can take a single risk and have it pay off, but if they spend the rest of their time playing it safe the business will inevitably fail. Without new risk they never capitalize on, or multiple, the success they once had.

In business you're either growing or dying.

The risk never disappear. Rarely are there guarantees in business, or in life.

Taking a risk is an emotional rollercoaster that sometimes requires you to go against what everyone else says. Being bold and unconventional is really the only way to learn -- it's the only way to grow. Great leaders understand this.

Many people believe that through research, marketing, planning, testing, and reporting you can eliminate the risks or at least make them more calculated. The reality is this level of granularity only works for Fortune 500 companies that can afford to take extreme risks with millions of dollars, which ends up being only about 10% of their total profits for the year.

You get rich by taking lots of risk with small amounts of money and you stay rich by taking small amounts of risk with lots of money

- Jack Butcher

Risk are the cost of doing business. Entrepreneurs at all stages need better ways of evaluating risks. They need to understand the real risk they should be taking.

Learn to weigh the dice, not roll them.

Risks are always undesirable. The goal is to weigh them properly, not just go off the emotional decisions we usually make.

Most people weigh their decisions based on the opportunity cost associated with them. Start doing more risk assessment instead of opportunity assessments. This is the easiest way to mitigate the overall risks assumed.

There's three crucial steps to assess risk:

1) Identify potential threats

Establish the context you have going into the decision. The easiest way to move the odds into your favor is through preparation.

But you'll never have all the context needed so be careful to avoid the slippery slope of analysis paralysis. At some point you have to be ready to jump in.

Identify the risk and categorize them to get to what are controllable. There's many different categories of risks that exist out there:

  • Competitive risk: similar products or services
  • Technology risk: technology failures, change management (learning a new software), feasibility (can this exist)
  • Credibility risk: getting consumers to trust the business based on the established
  • Strategic risk: branding, positioning, offer, etc.
  • Personal risk: reputation, future, personal potential
  • Financial risk: keeping the cashflow needed to stay in business
  • Market risk: knowing whether or not a market has the demand for the product/service and macroeconomic factors

Some of these are in your control, others are not. Focus on controlling the controllable.

2) Define a strategy to reduce those threats

How severe or frequent are the identified risks? Is there more preparation you should do to understand them fully?

Risk that are important enough must be mitigated, or closely monitored. Have processes that measure and assess them. Some of the best entrepreneurs know when to cut their losses. Develop safeguard in your strategy.

3) Monitor and evaluate strategy

One of the reasons for failure is the inability to accept sunk cost. Calculate the Return on Risk (ROR). Use the data you're collecting to learn and iterate on your strategy.

Remember, no one get's it right 100/100 times.

Be ready to change course quickly and wager your time, money, and talent on well thought out strategies are you continue to learn.

Changing course doesn't mean it was a failure. People will quickly forget it.

There's learning that comes out of it all with reflection. Sometimes old projects can get new life later on when certain risks are absolved.

Focus on maximizing the chances of getting the reward by minimizing the risks involved.

Intentional risk-taking is a mindset that can be developed.

The first step to evaluate risks is knowing yourself.

Does the unknown take you out of your comfort zone?

Are you a high-risk adverse person or a low-risk adverse person?

Do you have skills, attributes, emotional resilience, etc. required to take on this risk?

These evolve with time. It's natural to be less risk adverse when you have a family, rather than when you are single. Knowing yourself is the only way to overcome the inner dialogue that tells you the odds of failure are too high. The dialogue you have with yourself causes fearing:

  • Lose money
  • Lose of time
  • Lose of clients
  • The judgment of others

Without being able to first overcome the internal beliefs you hold, no risks can be taken.

When it comes to personal risks, use the regret minimizing framework. Minimize the number of potential regrets from missed opportunities.

Choosing to stick to the path of searching for a Product Management job despite knowing that the odds were stacked against me in some sense was application of minimizing the regrets I would have later in live.

If you can tolerate the worst thing that could happen, and the benefits greatly out weigh the risks, then it's probably worth taking.

Most of the decisions you make are reversible, so why not take the chance. Pivot your perspective to believe that if you make a mistake, it's not a failure -- it's a learning experience.

Take the baby steps.

Lean on the right people.

Embrace the discomfort.

Start developing the mindset to take intentional-risk today by building up the muscle memory through small risks in your daily life.

FOOTNOTES

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