The Game of Risk in the Pursuit of Business

Risk sounds bad, right? We talk about avoiding risk, reducing risk, and managing risk. Diversifying your portfolio to reduce your risk.

This is just a reminder, to me, as well as to you. Risk has two sides. A lot of risk means not just a greater chance of failure, but also a greater chance of a big win.

It’s related to gambling. You choose the long shot, you have more chance of losing, but if you win, you win bigger. Put a chip on the red or the black on the roulette wheel and you have almost a 50% chance of winning 1 chip. Put a chip on number 17 on the roulette wheel, and you have about one chance in 35 to win, but if you do win, you win 35 chips.

So I’m posting this today as a reminder. Fixed vs. variable costs; debt vs. equity; the high-risk strategy isn’t always bad. You can reduce risk by sharing ownership and bringing in more capital. That’s a good thing, if that’s what you want. But what if you want to own it entirely yourself? Investors are bosses, and you’d rather make your own decisions. Then you take more risks. It’s not necessarily a bad thing.

Bootstrapping: most of the time it’s the only option. Sometimes it’s a choice.