Leaders and business of risk-taking

Taking risks is dangerous but it is much more dangerous not to take risks. In business, success is elusive without risks being taken because the nature of business is change and every change constitutes a risk. Change comes only when new things are tried. But trying new things means venturing into an uncharted area and that is taking risks.

Those who have changed the way we live took great risks; sometimes failing but oftentimes succeeding. Without taking risks, business is mere routine, same of the same. It is when business people are on the go, looking for new areas to invest in and new products to introduce that they are able to affect the society and in the process create new wealth. So, the greater the risk, the greater the success.

Risk taking defines business. Starting a new business is a risk. Introducing a new product is a risk. Engaging a new staff is a risk. Appoint a CEO is a risk. So, the pseudonym of business is risk.

Mindset of risk takers

Most risk takers think differently from the average person. While the average individuals see problems in an endeavour, the average risk taker sees prospects. Where the average person envisages failure when embarking on a new project, the risk taker envisions change. Whereas the average person sees debts, the risk taker sees wealth. Hence, risk takers appear to be the only lucky ones. As observed by T. S. Elliot, only those who risk going too far can possibly find out how far they can go.

Elumelu and STB

When Tony Elumelu resigned his appointment in 1997 to pick up the pieces of Standard Trust Bank (STB), he was not unaware of the risk he was undertaking. But his hope outweighed his fears. He knew that if he was able to do what he planned to do with the ailing bank, he would be writing his name in gold. So, he went for it. The new owners brought service innovation to the bank. Bank customers who were hungry for innovation lapped it up. Thus, Elumelu and his team brought life back to the dying bank and turned it into one of the top five banks.

But Elumelu was not done with risk taking. In 2005, he led what was at that time the largest merger in the banking sector in Sub-Saharan Africa to acquire the United Bank for Africa (UBA). He has been able to grow that bank into a pan-African financial institution with operations in 19 countries.

Elumelu is the chairman of Heirs Holdings and the founder of the Tony Elumelu Foundation, dedicated to the promotion of entrepreneurship and business excellence in Africa.

After being successful as a risk taker and a businessman, he has put in place a measure to encourage and empower African entrepreneurs to birth their dreams through the institution of a scheme that will provide $100million to African entrepreneurs over a period of 10 years through the Tony Elumelu Foundation.

Today, Tony Elumelu is recognized and honoured as an African business leader but the root is in the risk he took when he staked his reputation as a banker to attempt the revival of the ailing STB.

Between risk and gamble

Risk-taking is not a gamble. While a businessman takes a business risk after a critical analysis of available facts, a gamble is more of an emotional thing. A gamble is a shot in the dark; it may hit, it may miss, a gambler has no control over what happens with his gamble. Hence, the odds are stacked against a gambler. A risk is not like that. Even when a risk fails to produce the aim at the end of the day, it is not because the action was based on sentiments but rather a consequence of projection error or due to unforeseen circumstances.

Before taking a risk

Dr. Ben Carson, a neurosurgeon who gained global renown for his intricate and delicate surgeries to separate the brains of conjoined twins, says ahead of taking a risk, he usually asks himself four questions with the answers serving as a guide in determining his actions. He calls this process the best/worst case scenario analysis. He commends this to anyone who has to take a risk.

What can be the best result from this?

The first question to ask is: What is the best thing that can happen if I do what I am contemplating? The essence of this question is to find out at the onset what the benefit of the action is and to know if it is worth the trouble. A company needs to answer this question to gauge the greatest impact a new product can have on the market, the highest return on investment the company can expect and determine whether investing money and time on the project is worth the company’s while.

A leader needs to answer this question to know what is the best that can happen to himself, the organization he leads and the society at large by pursuing a course of action.

What is the worst case scenario?

The next question is: What is the worst thing that can happen as a result of taking this risk. In the continuation of gauging the impact of the action, a business owner needs to find out what is the worst thing that could happen by introducing a new product or by embarking on a new line of business. What would happen if the product were to generate far below projected revenue? What happens if the market rejects the new product outright? What is the worst imaginable thing that could happen by taking this decision?

Then the business owner or leader needs to determine how he will mitigate the situation.

What is the best thing that can happen if I don’t do this?

The leader needs to also find out the best thing that could happen if he does not pursue the course of action he is contemplating. What change would there be? Would everyone be at peace? Would it greatly improve the financial outlook of the company? Would it reduce tension?

Determining these is important in going forward with the project.

What is the worst thing that can happen if I don’t do this?

Finally, the business owner or leader needs to find out what the organization stands to lose if it refuses to act along a particular line. Will the company lose revenue? Will it lose goodwill? Will it lose its market share? Will it lose its competitive edge?

All of these are important in deciding what should be done with regards to the issue at hand.

Emplace risk management measures

But despite taking steps to reduce the risks that are associated with starting something new, the project may still go wrong. Hence, it is important for the leader to put measures in place to mitigate any negative result from the step taken. This is risk management.

Risk management is moving against threats or risks with a view to mitigating their effects so that they do not stand between a company and the achievement of its corporate objectives. According to Murphy’s Law, whatever can go wrong will go wrong. The onus is on the leader to ensure that steps are taken to guard against things going wrong. However, when things go wrong, the leader has to make sure that the effect is minimal on the organisation.

Richard Branson’s Virgin

When Richard Branson was starting Virgin Atlantic airline, while he realized that the success of the airline would help the Virgin Group a great deal, he was also conscious of the fact that failure was a possibility. So, he decided to protect his downside. He scheduled a meeting with Boeing, the aircraft manufacturers, and extracted a commitment from the company that if the airline failed Boeing would buy the aircraft back from him. At that time, British Airways was the major buyer of Boeing aircraft and the company wanted a competitor for British Airways, so it agreed with Branson. As it turned out, Virgin Atlantic did not fail and Boeing did not need to buy back Aircraft from Virgin but Branson was smart enough to protect the Virgin Group from the negative effect of Virgin Atlantic’s failure.

According to experts, risk management involves five steps.

Identification of risks

This is important because unless the threat or risk is identified, nothing can be done about it. The risk must be identified early enough to stop it in its track. Business risk is like a cancerous growth, if it is detected early enough, the damage would be minimal. But if it goes undetected for long, the effect may be calamitous. So, leaders must know their business well enough to sniff a risk a mile away.

Risk analysis

This involves stripping the threat to its bare bones, that is piercing through it to get to its heart. The diagnosis of the risk must be accurate for the right therapy to be recommended. Analyzing a risk leads to getting to its root and critical to dealing with it. Without doing this properly, it would be difficult to come up with the right remedy or strategy to deal with it.

Risk evaluation

This is done by comparing the risk with the structure in place in the organization. This is a way of measuring the capacity of the organization to deal with the risk if it does manifest. If it is a natural disaster risk, the company must look at the insurance policies in place and how well they can serve as a bulwark for the business. If it is a financial risk, what options are open to the company in shoring up its finances should the threat become real? These are some of the issues that will come up in risk evaluation.

Treat the risk

This involves putting in place measures that will result in the total avoidance of the risk or minimizing its effects. After comparing the risk with the structure in place, the next step is to move into treating the risk. If the measures on ground can handle the risk, then, it could be done internally. If the case is otherwise, then external help could be sourced.

Monitoring the process to ensure compliance

When risks are well-managed, the impact on a business is minimal and that puts the company in a position to continue in business.

Last line

Only those who dare to fail greatly can ever achieve greatly — Robert F. Kennedy.