For a long time, the calculated risk was an integral part of any serious business management. Interestingly, there are two fundamentally different points of view: Some focus on the damage that can result from a risky undertaking – others focus on the probability of occurrence.
I think today both are almost an anachronism. It is again en vogue to take risks, yes, one can stand out in the market almost alone by taking risks at all. While I consider the calculation of the possible damage of a risky initiative as an entrepreneurial duty, I have little regard for calculations of the probability of occurrence – and the decision based on it.
„Self fulfilling prophecy.
Because the more you concentrate on how much of a new entrepreneurial initiative can go wrong, the more you do to reduce exactly this ratio. On the one hand, this reduces the risk of falling, but almost always too little serious consideration is given to the fact that the probability of success also decreases.
I have seen a number of initiatives and undertakings in recent years which follow exactly this pattern. You’ve put yourself in an unfavorable position without exception. And, it should be mentioned, an unfavourable position can also be a strategic one, although the current business is still running well.
This concentration on what can be lost is an administrative characteristic not an entrepreneurial one. It leads to the short-term safeguarding of the existing – which in itself is nothing bad at all. In the long term, however, this way of thinking will not create anything new, no adaptation, no new offers, and it will lead to a loss in the market.
Focusing on what can be won
If we look at entrepreneurs in the early 20th century and in the post-war years, it seems to us that they have taken enormous risks. I say that’s not correct, because they didn’t have much to lose. Many of these entrepreneurs and the companies were so successful because they radically focused on what they could win.
Concentrating on what to win when there is a lot to lose is indeed quite a challenge. It means doing one thing and not letting the other.
Late Harvest Concept
We can see from the example of the automotive industry just how difficult such a thing can be. On the one hand, the German automotive industry in particular has a market position that is formidable and highly profitable – it has a lot to lose – on the other hand, the automotive market is slowly but surely breaking down. So there’s a lot to win.
The question is what to do in such a situation. In my opinion, it makes sense to invest a significant portion of the profits in high-risk investments instead of distributing them to shareholders. To take advantage of these new opportunities.
Most traditional car manufacturers have more or less prescribed a concept of „late harvest“: they want to wait until the market shows them the way and then cover a demand with full (financial) strength.
Missing learning path
Paradoxically, the risk calculation for such an approach shows quite good values. However, I believe that the strategy of late harvesting is highly risky because such a risk assessment externalizes circumstances that are very difficult to quantify.
More than anything else, these companies lack the learning curve for new market and sales models. Even as a company, it is essential to make mistakes yourself and learn from them. This is not great, but it is the basis of any further development.
100% too late
In my opinion, the biggest risk is that you can no longer react to market changes in a reasonable time and be pushed aside. One is simply too late and, to make matters worse, does not have the expertise to play a relevant role in a changed future market. In the end, even large financial resources no longer help.
With all due respect to a trustful handling of business risks, make sure that you are not too late in developing your business. Because surely too late is still too late.