Taking Risk Intelligently

Risk taking is an integral part of business and life, but so few people know how to manage it properly. The word risk has a slightly negative connotation to it — it implies danger, tension, and possible loss. But risk also has a positive side, the chance of hitting a big win, of getting more on the back side than you invest on the front side.
All risks are not equal, however. Some risks are just plain dumb, and you should never take them. But even in those cases, there’s usually some emotional benefit.

But what about intelligent risks? Those are obviously the ones where the upside outweighs the downside, at least probability-wise. You won’t find too many of those risks in casinos.

Now we all know it’s generally a bad idea to take dumb risks, where your expected outcome is negative and the potential upside is very limited. But guess what… It’s equally stupid to pass up an intelligent risk, where your expected outcome is positive and the potential downside is very limited.

This is a concept I learned from Jay Abraham. I had to hear it many times before it really sunk in, but when it finally did sink in, it completely transformed my thinking about risk taking.

The most intelligent risks are those where the potential downside is limited, but the potential upside is virtually unlimited. Those are the risks you should jump to take.

Here are some other examples of intelligent risk taking:

• Ask someone out on a date (worst case downside = one-time embarrassing rejection, best case upside = lifelong relationship with your soulmate)

• Ask for a raise or promotion (worst case downside = boss says no, best case upside = permanent raise or promotion)

• Start a blog (worst case downside = waste some of your time, best case upside = change your life and the world for the better)

• Join a new club (worst case downside = waste some of your time and quit, best case upside = lifelong friendships plus a lot of other benefits)

• Take a cooking class (worst case downside = waste a little time and money, best case upside = become a permanently better chef)

Are you one of those people that mentally catastrophized my worst case downsides? Like instead of a “one-time embarrassing rejection” for a date request, you thought about a stalker or a painful divorce? If so, maybe it’s time to turn off the TV and hang out with more positive people.

Most of us are pretty good at avoiding dumb risks, unless you happen to be reading this from a jail cell. But we’re exceptionally lousy at taking intelligent risks. The stupidest mistakes we make are errors of omission.

One of the reasons I’m so gung ho about personal development is that I see such pursuits as a very intelligent risk-taking. I might waste a lot of time reading bad books, listening to lousy audio programs, and going to lame seminars, but every once in a while, I hit a huge breakthrough that leaves me permanently changed. Most of the books, audio programs, and seminars I devour are indeed a waste of time. Maybe I get a temporary rah rah boost from them, but usually they’re forgotten soon afterwards. However, those few gems that help me create permanent change make the entire pursuit worthwhile. These gems, however, are different for everyone. One person’s lump of coal is another person’s diamond. So even personal recommendations don’t help that much. It’s like a game of chance, but in the long run, the odds of success are in your favor. This machine has a long-term payout greater than 100%.

The key to intelligent risk-taking is to look far enough ahead. When thinking about personal growth, I don’t just think a year ahead or five years ahead. I think across the span of my whole lifetime (sometimes even thinking beyond the grave… seriously). I ask myself, “What difference might this make over the span of the next several decades?” Over that timespan even small changes you might make today can create huge long-term payoffs. And the decision to do nothing today means you’re automatically denying yourself any long-term benefits. Doing nothing isn’t neutral. Doing nothing is way, way negative.

This is one of the reasons it’s so important to install good habits. In the short-term, it’s a struggle, often a painful one. We have to deal with disappointment again and again. We fall flat on our faces, dust ourselves off, and throw ourselves into the ring anew, only to be pummeled once again. And we use that same tired mantra, “This time it will be different!” — a mantra that fails 19 times out of 20.

What keeps me from getting discouraged when my failures outnumber my successes is to keep thinking long-term. I often must endure a lot of failures to hit the next big breakthrough. So I just plow through those failures as fast as possible. It’s like a conveyor belt — there’s a new success on that belt somewhere ahead, and the faster the belt moves, the sooner it will arrive.

It’s amazing how much long-term difference just a small change you make today can make. Just a little more self-discipline, a little more courage, a little more persistence, a little more enthusiasm — these can produce huge gains in the long run.

Do NOT give up during the flat period!

The flat period is the hardest because you’re working hard and getting very little to show for it. Maybe you keep working on your social skills but can’t seem to get a date to save your life. Maybe you keep working on your internet skills but still can’t figure out how to make your own web site. Maybe you start a new business and just can’t seem to get anything going.

That’s life. Give yourself permission to work hard and have little to show for it, as long as you intelligently hold a positive long-term outlook.

Love is more powerful than fear. You can overcome fear of risk by tapping ever more deeply into what you love most. The thought of taking a risk produces excitement instead of anxiety.

Find an intelligent risk you can take today. Most likely it won’t pan out. But what if it does? Celebrate either way because no matter what the outcome, you’ll gain courage just by making the attempt.