100% safe is usually 100% too late

For a long time, calculated risk was an integral part of any serious company management. Interestingly, there are two fundamentally different ways of looking at this: One focuses on the damage that can occur as a result of a risky venture. The other focuses on the probability of occurrence.

I think both are almost an anachronism today. Taking risks is back in vogue. Yes, in most markets you can almost stand out just by taking risks at all. While I consider calculating the potential damage of a risky initiative to be an entrepreneurial duty, I think very little of calculating the probability of occurrence and making decisions based on this.

“Self fulfilling prophecy”

Because the more you focus on the percentage of a new entrepreneurial initiative that can go wrong, the more you do to reduce precisely this key figure. On the one hand, this reduces the risk of failure, but almost always too little serious consideration is given to the fact that the probability of success also decreases.

In recent years, I have observed a number of initiatives and companies that have acted in exactly this way. Without exception, they have put themselves in an unfavorable position. And, it should be mentioned, an unfavorable position can also be a strategic one, even though the current business is still doing well.

This focus on what you can lose is an administrative characteristic and not an entrepreneurial one. It leads to the short-term safeguarding of what already exists, which is not a bad thing per se. In the long term, however, this way of thinking creates nothing new. No adaptation, no new offers and it will lead to losing out in the market.

Focus on what is to be gained

If we look at entrepreneurs in the founding period or at the beginning of the 20th century and in the post-war years, it seems to us that they took enormous risks. I maintain that this is not correct, because they didn’t have much to lose.

Many of these companies and entrepreneurs were so successful because they radically focused on what there was to gain.

Focusing on what there is to gain when there is a lot to lose is quite a challenge indeed. It means doing one thing and not letting go of the other. Almost no one is good at that.

Late harvest concept

We can see from the example of the automotive industry just how difficult this can be. On the one hand, the German automotive industry in particular has a market position that is formidable and highly profitable – so it has a lot to lose – but on the other hand, the automotive market is slowly but surely collapsing. So there is also a lot to gain.

The question is what to do in such a situation. In my opinion, it makes sense to invest significant portions of profits in high-risk investments instead of distributing them to shareholders. In order to take advantage of these new opportunities.

Most traditional car manufacturers have more or less committed themselves to a “late harvest” concept. They want to wait until the market shows them the way so that they can then meet demand with their full (financial) strength.

Missing learning path

Paradoxically, the classic risk analysis and calculation shows quite good values for such an approach.

However, I believe that the late harvest strategy is fraught with maximum risk, because such an approach to risk externalizes circumstances that are very difficult to quantify.

More than anything else, these companies lack the learning curve for new market and sales models. As a company, it is also essential to make mistakes and learn from them. That’s not great, but it is the basis of any further development.

100% too late

In my opinion, the biggest risk is that you will no longer be able to react to market changes in a timely manner and will be pushed to the sidelines. You are simply too late and, to make matters worse, you don’t have the expertise to play a relevant role in a changing future market. In the end, even large financial resources won’t help.

So, with all due respect for a confident approach to entrepreneurial risks, make sure that you are not too late with the further development of your business. Because while it may be safe, too late is still too late.

This article originally appeared on the 2ChangeCulture blog by Chris Decker and Ramona Zimmermann.