As a business attorney, I’ve had the honor of being on the “inside” of so many businesses over the years. I get to see what’s going on in a business and how the owner makes decisions. I also get to see the results of those decisions – the good, the bad and the catastrophic. I saw a lot of risk-taking.
Taking risks in general is a fascinating topic for me. Back when I was working in other law firms, I judged my clients’ decision making in a certain way. Often, I didn’t understand why so many of them were willing to take such huge risks with their business. Of course, I was just looking at the “legal” side and I knew from reading hundreds of cases (and seeing first hand) what could happen when something goes wrong. I knew the downside of those decisions and they could be catastrophic to a business.
Most of my attorney colleagues were the same as I was – very conservative, risk-averse – and we didn’t see the need to take many risks. There was just too much at stake. So we counseled our clients from that perspective, often discouraging them from taking any risks in their business. I understand why some business people call attorneys “deal killers” – and there’s no doubt that many times we earned it, scaring our clients out of a course of action. We would outline the catastrophic scenarios that could happen – no matter how remote – and were astounded when some of our clients went ahead anyway.
Many attorneys are still this way. I am not.
I started changing the moment I decided to open my own law firm. And wow, that was a huge risk! It was so painful at first – so terribly painful to take those first risks and jump off the cliff of “security”. It went against my grain and I had to fight every instinct to play it safe.
Over the past several years, I’ve come to terms with risk. Instead of thinking of all risk in the same way, I now understand the difference between good risk and bad risk. I’ve realized that good risk is the essential nature of business. Without it, there is no business.
Out of necessity, I developed my own way of assessing risk and making decisions. It’s helped me in my business and it’s helped me give better advice to my clients. I no longer try to keep them from taking any risks – I now help them do an assessment to determine whether a particular decision is a good risk to take or a bad risk they should avoid.
The first step we do in the risk assessment is to realize that a decision can be an action – or it can be an inaction. Either one is a decision – and either one can have a risk associated with it. It’s easier to be aware that an action you are considering may be a risk. But it’s also important to understand that not taking an action can be a risk. For example, if you are avoiding putting a contract in place with your business partners, that inaction is creating a risk on you and your business. Both action and inaction should be considered when doing risk assessments.
The second step is to understand what type of risk-taker you are. Everyone falls somewhere on a spectrum – from very risk averse to loving the thrill of a risk.
On the one end, the very risk averse business owners move slowly and it takes them a long time to make a decision. They are okay with really slow progress because it is more important for them to be “safe” than to move quickly. For these clients, we give them the information they need to make the decision – hoping that it will allow them to make the decision more decisively (and quickly) than they would have without our guidance. Our job is to provide the security of knowledge and confidence in their choices. The result is that they acknowledge that some risks are good to take – and they move forward.
On the other hand, the thrill seekers love the adrenaline of the fast lane. They are comfortable taking all kinds of risks (even the bad ones). Wheeling and dealing makes them feel successful and they get energy from the super-fast pace. For these clients, we force them to consider the different types of risk involved. Our job is to walk them through the risk assessment and show them potential outcomes. The result is that they acknowledge that some risks are bad – and they slow themselves down enough to steer in the best direction.
Most of us know one or two business owners on the far ends of this spectrum, but reality is that the majority of us fall somewhere in the middle. We may lean towards the risk-averse side, but we move a little more quickly. Or, we may lean towards the fast-paced side, but we’ve learned to make ourselves more deliberate. Knowing where you tend to fall on the spectrum helps to see the benefits of doing a risk assessment.
Those two first steps in the assessment are ones that anyone can do right now. The remaining steps in our risk assessment are a bit more technical and depend on particular circumstances. The important things to remember are:
- Consider whether an action or an inaction are creating a risk for you or your business.
- Determine whether the risk is “good” or “bad”.
- Keep in mind your tendency for risk-taking – and whether it is affecting your decision.