I've believed for a long time that it is my job to turn risk into gold. Not into the actual metal but something we value similarly: wealth. It's an odd way to think about work since usually what we think makes us money is doing some service or selling some product and receiving payment for it. But if you are an entrepreneur, you are not only building a product or servicing your clients; you are also tying your company's fortunes to that product or service because you typically aren't big enough to be well diversified. Thus, the company's core risks and the actual product or service being sold are nearly the same.
People are bad at judging all sorts of things but risk is a really hard one; the current stock market gyrations were based on complex financial instruments built on models of risk that ended up failing in part because the underlying assets (in this case bad mortgages) were not properly modeled for their level of risk (and thus making the financial instruments hard to value since they derived their value from home mortgage values and risks that were misjudged). On the other hand, in good times, such as the dotcom boom, smart people thought companies with no revenues should go public and then ended up having incredibly high stock valuations. Until the market (made up of people) decided they shouldn't and the crash happened.
It is my belief that if you are an entrepreneur, you must assume a position that you need to learn from both what is successful in the marketplace and what fails. This does not mean you haplessly watch the world and the marketplace without being an active participant; being an observer is not enough. You have to be analytical and you have to focus on finding the right information that will guide you to your success.
I've observed one of the biggest differences between people at growing businesses and those at stagnate ones is their appetite for risk is different If you are afraid of failure, you never bother trying something that has the potential for great reward. Since the market pays a premium for activities that generate greater than average profits from individuals (this is theoretically why CEOs and corporate officers make so much more than other employees at companies; they can steer the whole ship into great rewards or great troubles) those willing to have greater failure can also bet big and have greater reward.
You would think that if you let fear drive you, you would naturally gravitate away from the potholes in business and have a safe and successful journey. But, of course, you'd be dead wrong. If you never take the risks, what happens is things change around you. As you swerve to miss the potholes you see, new potholes appear that you didn't plan for. Whereas when you plan to manage risk, you know there are potholes and you know you will just have to get over some of them and that new ones may appear but since everyone else is just trying to dodge them, you have a greater chance of finding, building or learning something that will make you stronger. The risk, if managed correctly, becomes a strength. That strength may come from wealth, education, or some other unique aspect of business that makes you weather life a little bit (or a whole lot) better than if you were swerving around all the potholes like everyone else.
One way to manage risk is to try to understand how successes happened and repeat them. Unfortunately, and you see this a lot, successful companies tend to have mythos on their founders and their great strategies and hide their failures. You don't hear a lot about Microsoft Bob or the Apple Newton but Microsoft XP and the iPhone you certainly are aware of. This makes entrepreneurs, who think they are getting the whole story, actually only see the marketing version of the story with the highlights turned way up.
The only way to get a true picture of how successful people and companies evolve is to understand both the failures and the successes. Then you can try to emulate the successful characteristics and learn to dodge or at least survive the failures.
In that vein, I tend to value failure, to a degree, as much as success. Where you can learn from it and learn to improve the aspects that made the failure occur, failure can be wonderfully instructive. However, if you don't want to face the risk of failure, then you never will learn from these "negative" events because when failure happens you will try to "fix" it as fast as possible and not value the event. You have to balance the failures with the successes to ultimately be smart enough to know what actions will have what consequences and how to tilt those outcomes to be positive in the long run for your company. If you can do that, you will make risk work for you, and make everyone at your company have the potential for great wealth.
