The Risk of Not Taking Risks
June 6, 2023
It was in the last week of November 2022 that a caller in my quarterly townhall meeting, Sampark, posed a question. She asked, how did I take risks and how did I measure their outcomes. It was an interesting question. There were upfront easy answers, but none that would satisfy the query in a single line. The question set me thinking and observing my actions in the present and in hindsight. This is my attempt to answer that question.
I was born in a family of entrepreneurs, where people are hard-wired to take risks. I grew up on stories of people, not limited to my grandfather Late OP Jindal, who went on to create industries from scratch. On the other hand, I also came face-to-face with incidences of failures, leaving a downward spiral of debt and depression in their wake. In my early years, I imagined risk as a double-edged sword and imagined business as a fencing arena. I thought risks were the necessary evil to do business. If one has to succeed, one has to take risks, even if it meant cutting yourself at one or two places. Risks evoked in me a feeling of veritable awe, mixed with fear.
Little did I know then that I was getting it all wrong.
Risks Are the Building Blocks of Life
Risks are not necessary for business alone; they are inherent in the nature of life. They just get amplified in the journey of entrepreneurs and their enterprises, but in reality, risks are the building blocks of life, just like joy and sadness are. All of us, entrepreneurs or otherwise, are working with risks all the time. To walk down the street is to risk an accident. To not walk down the street is to risk lethargy or inaction.
Curiously, while the risk of commission, that is doing an act, is easily recognisable, the risk of omission, or not doing an act, is barely recognised. The latter is seen as not having risked. Nothing could be farther from the truth than this! For instance, looking for a new supplier may involve risks of quality or delivery standards. However, not looking for a new supplier may risk innovation and constant improvement. Diversifying into a new line of business risks losses. Not diversifying risks stagnation. Risks, therefore, are as essential to success as they are to failure. The only area that merits an approach of not risking is those of eternal human values.
Recently, I was listening to a video on leadership by Sam Manekshaw. He mentioned how one suffers at the hands of leaders who are prone to indecision. He went on to say, “An act of omission is much worse than an act of commission. Acts of commission can be put right even if the decision is wrong, by colleagues and subordinates. But an act of omission cannot be put right.” People who shy away from risk in the garb of indecision often cost more than those who actively risk.
So, to answer my caller’s question – my take on risks is that I consider risking as welcome as breathing. I had read a poem on risks long ago, and these lines have stuck: The person who risks nothing, does nothing, has nothing, is nothing.
Now coming to the second part of the question, which is, how I measure their outcomes. I measure risks of omission by their opportunity cost. How much revenue are we losing by not entering a customer segment that our competitor has? How many human hours are being lost by not adopting a digital tool that’s available in the market? What are the losses incurred on account of talent attrition by not investing in people? These are just a few examples. The opportunity costs of not taking risks, in my experience, are exponentially higher than the cost of risks. The losses in such cases are both immediate and long-term. They take the organisation behind the curve by losing out on the early-bird advantages. The loss of reputation, as a result of being seen as laggards, is incalculable.
One may argue here that these losses are imagined and not actual. And that playing safe helps prevent many bad decisions. But there’s a difference. To play safe after evaluating all pros and cons is a clear and categorical decision. I am all for playing it safe and taking only a few risks at a time. In fact, spreading oneself too thin in all directions can risk organisational stability. At the same time, not taking any risk to remain stable is actually degrowing. Since the world is moving fast, sitting at the same point means going backwards. The quote, “The brave may not live forever, but the cautious do not live at all,” is even more relevant today.
Outcome calculation for risks that we undertake is far easier in comparison. Funds, overheads, time, etc everything can be monetised for a failed project. Despite the losses they cause, I do not classify these risks as failures because they come with important lessons that invariably help the business later. However, I do believe that one should define bleed limits to such risks. In the stories of bankruptcy that I have come across, people have either chased a risk too far beyond its reasonable limit, or they’ve been too despondent to take up anything new after failing in one undertaking. The ones who’ve tried, again and again despite minor failures here and there, have always been successful in the bigger picture.
My advice, therefore, to peers and colleagues is this: Make sure that you are working on one risky project at a time. Take risks, observe outcomes, and carry out course corrections until you achieve your objective. It is a process. One gets better at it with practice. If you succeed, great. If you don’t, you learn. Whichever way it takes you, don’t lose hope and absolutely don’t dilly-dally. To sum up in the words of Manekshaw – if you must be a bloody fool, be it quickly!
This article was first published on moneycontrol.com –