Is Your Startup Ready To Handle Risk?

You’re sitting at a blackjack table. You have a 17 in your hand and your dealer has 18, what do you do? The fact is, if you do nothing, you’ve lost. If you take another card, you have a chance of losing or a chance of winning. The actual probability will be determined by the other cards on the table and what’s next in the shoe.

This is risk. You’re in a tough spot and really have to take that next card. In a few seconds, the truth will be facing you, but that moment of decision is yours. Is your stomach tightening at the thought of what may come? Are you getting clammy hands at the prospect of winning the hand? Are you wrought with anxiety over the position you find yourself in?

Let’s modify this scenario a bit. You have $10 on the line. How does this change your reaction? What if it’s $50? $100? $10,000?

In all cases, nothing has changed except for the amount at stake. You are at the mercy of the order of the deck. The odds haven’t adjusted because you have more money at stake. The only thing different is your reaction based on your perception of loss. Can you maintain good decision making despite the stakes?

This is something we always tend to gloss over while discussing startups and actually business in general. If you go to business school, there are no courses in the curriculum called “risk” at either the undergrad or graduate level. Sure, statistics is covered, which allows you to quantify probability, but handling risk is more than just knowing the numbers.

Risk comes in many forms.

In a startup, we are all acquainted with risk as a concept just in moving our project forward. There’s risk in taking the plunge and filling our starting paperwork. There’s a risk in putting together operating agreements. There’s a risk in soliciting funding. There’s a risk in closing a funding round. There’s a risk in developing a product. There’s a risk in taking it to market. There’s a risk in scaling up. And so on it goes.

These are all risks any entrepreneur is well versed in considering. It’s the risks that keeps most of us up at night. These are obvious, existential probabilities that mean the difference between the success we dream about and having to find something else to do. But, these are risks that we can…