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  • Jorge Diaz

In Business, Risk is the Downpayment on Success

Updated: Jan 8

My favorite quote of 2019: "Risk is the downpayment on Success." I have no idea who said that as I only have the certainty, it wasn't me. But it is so damn right.


Risk is the best teacher, and failing brings the best lessons. It is so important to learn to fail in life as it is to achieve. Being willing to risk is being ready to learn and to go further. That's what little birds do before learning to fly. That's what brings most little turtles all the way down through the sand up to the sea. Is it risky? Hell, it is, but that is what life is.


I could come up now with lots of examples, but as this is a business resource center, let's talk business then:


Managing Risk in Your Business Venture


I've been launching and growing online startups for more than 15 years now, and there is something you always need to understand: as any venture, there is a certain risk of failure.



In my previous article, What Should I Expect during the First Months of Launching My Business/Startup, I made a specific stop on the topic of failure. I would encourage you to read it before starting a business, it could give you some very good insights and ideas.


Henry Ford once said: "Failure is simply the opportunity to begin again, this time more intelligently." And it needs to be part of your business mantra: We have to prepare to use the outcome of this step to be the foundations of the next one. And there relies on the key to managing risk in your business.


#1 Control the "Failure Magnitude"


If you are planning to either launch a new business, test the waters, invest, do a product launch or simply try if some idea works, you have to make it "affordable". You cannot invest all your savings, leave your job, or drop your income sources following something that you don't know yet. That is principle #1: Don't make radical decisions and control the magnitude of your concept.


Ventures have risks. You are going into the uncharted ground; otherwise, you wouldn't be worried. Human beings are not scared of "2+2". We are afraid of "X+Y", the unknown. That's why it is better to make small mistakes than carrying on with huge ones. If you fail, which may perfectly happen, don't make it the end. Make it part of your learning process and keep your test magnitude under control.


  • If you have a business idea, start testing out with friends and family. Build a mockup, or start offering it for free as a service. Don't incorporate a company or set up a complex legal structure until you have a solid knowledge of how will it work.

  • If you have a new product or service on your website, do a simple ad campaign. There is no need to go after a big marketing budget to know if a product sells. Most of the time, a $30 advertisement investment can bring valuable feedback on the market's initial tests.

  • If you have a writing interest, start writing one article per week. Use any cheap online platform like Instagram, Wix, or Medium, which will be relatively affordable and safe.

  • If you are trying to rank for a specific keyword in Google, make sure it is worth the effort first. Search engine algorithms take months and years to position your pages in good positions. Make sure it is the right decision by spending a few bucks in Google Paid Ads to make sure those keywords have reasonable conversion rates on your end.


Once again, if you are going to fail, make sure it happens under a controlled environment. Low investments, Minumum Viable Products, and simple tests can provide you with crucial insights to reduce failure and get you closer to your end goal, even if it fails.


#2 Prepare for Understanding the Results


I remember a few years ago when I went to college and did an exam; there were only six possible outcomes: 0, 1, 2, 3, 4, or 5. There was no other chance things ended once my professors reviewed my input. And the aftermath was pretty clear.


  • 0-2: I didn't prepare myself at all.

  • 3: I survived.

  • 4: I studied.

  • 5: I was obviously prepared.


There was simply no other outcome. I knew how things were supposed to end, and even had a raw idea of how likely these were going to be:


  • 0-3: not that good for my overall scores. I would have an overall idea of what a test like that looks like and would probably study those specific topics once again for a second try.

  • 4-5: the exam was aligned with what I expected and the results were great. I could confirm both the most important topics of the subject and validate my knowledge of it.


Modern educational systems have a limited amount of failure cycles. Of course, it is expensive for institutions to repeat the same exam again and again and failure "allowance" isn't that accepted. But in business, our resources may be the ones limiting our test cycles or how much are we willing to go to make things work.


How many times, as a Business, are we willing to get a 0, or a 2? That is a very particular question for each one, but you need to make sure to know what to expect from your tests and how are you willing to accept the results these will throw.


#3 Apply what you learned and go Lean Again


Here is where the most critical value of your test comes in. Here is where you clearly know what to do next. Or even better: where you know what you cannot do next.


Just apply what you've learned and loop back again to #1. You have validated feedback now, make it part of your next step knowledgebase.


“The only real mistake is the one from which we learn nothing.” - Henry Ford

Once again, never better said.


Use that validated knowledge to make your next test to be stronger than the previous one. In the end, that is what entrepreneurship, development, success, and failure all together have in common: we learn from our mistakes and build our solutions on top of these.


But plan to fail short. It is safer than failing big ;)


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Don't Go Alone

About seven every ten new businesses fail during the first year of operations, and only 9 in 100 make it to five years.

 

Launching and growing a business isn't rocket science, but neither a matter of luck. It takes dedication, rhythm, and guidance.