Risks and Uncertainty in the Entrepreneurial World
Is it uncertainty or opportunity?
Let’s talk about risk and uncertainty. I remember 20 years ago when I was working for Harrison & William in London, my manager unexpectedly resigned one morning and there was lots of talk and worry in the office about what was going to happen, but especially within my team of approximately 10 people. The first thought that came to my mind was “That’s good news maybe I will get promoted””. A lot of people were worried and my reaction was the opposite, my initial thought was “there is an opportunity here, isn’t it exciting”.
I found the fact that somebody was creating a space by moving on exhilarating. I didn’t see it from a point of view that this is a dangerous or worrying situation because maybe the whole team is going to collapse, maybe everyone is going to move to our competitors, or maybe the business is going to fail. My response was almost 100% positive as I saw opportunity and a chance to move up. For me it was all about the here and now, what is going to happen with the team, will I get more clients, will I get promoted and will I be able to develop more business as a result of him leaving.
That attitude towards the risk has prevailed and still prevails today. As a human being I obviously value stability, certainty, continued earning streams, continuation of business and these kinds of things. But there is a huge part of me which relishes, embraces and enjoys change. So this is dichotomy here, two things living in parallel.
They are the desire of consistency, continuity and stability, yet I have this urge to change things. I get this enjoyment from change! When change happens it is exciting and fun to me. I think what is different with entrepreneurs is the balance of these two things in their life.
Attitude is the king
An example of this was the Russian crisis in 1998. We had a big office in Moscow and the Russian government defaulted on the payments DIF. I read about this in the news and became excited about it. My immediate reaction was “Wow! What’s about to happen, how interesting is this?” which was not necessarily the best reaction because it affected our business quite dramatically. It is not a bad example of taking a risk it is just my response to the challenge. I didn’t feel fear, I felt excitement. It is like extreme sports but in business terms. In August 1998, I remember I was on holiday when news about Russian default came out. There was so much in the news about it and I found it really interesting.
I had 90 people working in our Moscow office and I knew Russia well. But at the same time the realisation quickly came to me that we were going to have to make people redundant in order to survive! To me it was about how to tackle crisis. There are two types of people who deal with crisis – the kind of person who in a crisis worries too much and goes to pieces or the person who comes out of it thinking there is opportunity here, focuses their mind and attention, and realises what needs to be done.
So I went into survival mode and along with my management team, did what we had to do in order to keep our business trading in Russia. My mind at the time wasn’t pulling out even though I knew it was going to be bad but I never considered for one moment that we should get out of that market place. However, I knew that we had to change the business.
That was engaging and also difficult because you have to get rid of people, and it’s especially difficult to let people go that you like when it is not their fault, they work really hard and be good at what they do. We had to downsize from 80 staff down to 12. It was a really tough time and I didn’t enjoy letting people go but what I was stimulated by was the need for surviving. It was what we had to do in this situation to get through it. I believe this makes one of the true characteristics of an entrepreneur.
So with new technology, the internet, changes in regulations and just any changes, an entrepreneur sees this as an opportunity. I spoke to John Cornwall about demise of Phones4You and I said to him “John, I don’t believe that if you were still running that business, the same bankruptcy would have happened.” And he replied “No, it wouldn’t have, I would have done something different. I would have seen it coming or if I even wouldn’t have seen it coming I would have changed the business model, I would have changed what we do and we might even have been selling something completely different to the mobile phone industry!”
Does age really matter?
The only time the crisis went too far for me and I was actually worried was the financial meltdown in 2008. We all have our scale and this was a change to far. I can honestly say that during that period of time of 2008 and 2009 I was generally worried. But what is important to mention is that my circumstances have also changed. As Steven Spielberg said ‘All of us every single year, we’re a different person’. Your attitudes shift, perceptions change and responses to the environment differ over time as we develop, grow and learn, and our risk aversion increases with age. Luke Johnson once said that in actual fact we should take more risks as we get older because we get more experienced, more knowledgeable, resourceful and we can deal with risk better. But what actually happens is as we get older we become more risk averse.
The human nature is very complex in the approach to risk. Another thing of course is energy levels because tackling crisis or change requires a great amount of energy and as one gets older that certainty in most people decreases. But funnily enough for me, personally it increases. The certain situations will stimulate me as much as they did when I was in my 20s. But overall I believe that energy levels decrease substantially in the middle ages and I’m not an exception here too.
Risk more when you have less
When you have less to lose it is the time to take risks. But you should calculate the risk and if you don’t feel right about taking this risk – don’t take it. Follow your gut feeling and don’t push yourself in the early days into an uncomfortable place, because this discomfort will stay with you. This is why a lot of entrepreneurism is about the person rather than a statistical or empirical analysis of the situation. Statistically or empirically you might not do something but your gut feeling might be telling you to do it, or vice versa.
Another thing I wanted to recommend is to avoid taking unnecessary risks. Many entrepreneurs don’t take extensive risks as they know about their market and product. So for them it is not the risk as it might seem to other people. It may seem very risky to a banker but not to an entrepreneur.
Learn from your mistakes
Five years ago I invested in the area of products which was way out of my knowledge zone. One of them was children’s furniture and it didn’t work out. I was interested in taking my skills within the business services sector and applying them to other fields. But there were so many variables and so many unknowns, that actually you really put yourself in an alien environment. It is like being a city person and going to live in a tropical forest. Even though you want to try and test it, the chance of survival is limited. Now my investment portfolio is far more connected to the recruitment industry. So I learnt from that mistake and my advice would be to stay connected to your field.
The second unreasonable risk I have taken over the past years is delegating the management to people who I thought understood the business model, and they didn’t. They took the business in the direction that would ultimately result in the failure of the business. My theory for doing that was so that I could get on doing other things. But the business needed people who understood the business model better than the people I had given the responsibility to.
So that was an error on my part and there is no question on that matter. I chose the wrong people and took the wrong risk. It has resulted in decreasing instead of increasing the size of the business. Strangely enough I enjoyed that experience because I have learnt so much from it. My belief is that you learn more from difficult times rather than you do in the good times. It what I said in my book “How they blew it” you learn more from failure.
And in the end..
What my advice would be is calculate risk and trust your gut feeling. For example Mark Zuckerberg, Bill Gates and Steve Jobs were teenagers when they started their own business. So they couldn’t have a vast knowledge, they could not have a huge empirical or statistical research and market analysis; it came from their instinctive view that people will want it. Also truth to be told they didn’t have much to lose.
They all (I believe) dropped out from University, so that was a risk for their careers. But they didn’t take much of a financial risk so they didn’t have much to lose. Following your ambition, gut feeling, dreams, ideas and intuition is an essence of entrepreneurism. But that can hit you just as well in your mid 40’s or 50’s. I don’t think that young people have exclusivity on ideas, intuition, dreams and gut feelings. This is particularly because I’m getting older myself and I still have the dreams and by saying that I believe is another characteristic of an entrepreneur. You never stop dreaming of having an ambition and wanting to achieve more. Some people do but serial entrepreneurs always keep going – creating, innovating and building.