Zenith Finance Blog

RBA Finance

Taking a risk is not the same as taking a chance

What’s the difference between taking a chance and taking risks? Plenty!

There’s a big difference between a risk and a chance. A well-calculated risk may very well end up as a core part of your business or indeed a new venture. A careless chance may cause it to crumble. You should always ensure that no single investment will ever cause you to lose your capital.

Hearing a about a ‘hot’ stock to buy on the stock market; one that may multiply your money 100-fold in short time is taking a chance. Investing in a company that has been around for decades and has also:

  • Been growing its revenues 
  • Increasing its dividends consistently and 
  • Has respected people in management and at board level 
  • Is a measured risk. 

Business is all about risk: assessing risk, managing risk. Chance taking is not an option; but taking a well-calculated risk is the cornerstone of entrepreneurship. But how do you know when a risk is an acceptable risk?

A well-calculated business risk is an investment you make in yourself and in your employees. A careless chance, on the other hand, would be if you suddenly agreed to invest in a start-up with someone you had been seated next to on a flight to Hong Kong, who may have impressed you in some particular way. Of course that would not happen literally but you get the point. A well calculated risk involves investigating the deal, having your staff, your partners or advisors analysing the numbers, spending time with the potential partner to understand the opportunity and the value of his or her business.

Many will recognise the expression “Chance favours the prepared mind”; if you have laid the essential groundwork and identified where the risk fits in with your vision, you should find the confidence to separate reasonable risk from careless chance. And you will have the good sense to thoroughly analyse opportunities from every possible relevant angle. You can follow your instincts if you weigh your options first – after analysis, discussion and research, and input from your partners or team. Should I sign a long term lease or a short term lease? Should I hire employees or use contractors and consultants? Should I borrow or take on a business partner? Some of these are hardly the stuff of grand deals, and may seem rather mundane; but the wrong decision can be so costly that it can set you back years in your business.

You need to plan carefully but you do need to actually test. You have to focus on every day’s actions and what the consequences of these actions are. You must pay attention to every step and keep checking to make sure you are on course.
Inexperienced business people sometimes make poor decisions because they are terrified that opportunity will pass them by and they will regret it for the rest of their lives. That is rarely, if ever true.

Warren Buffet, the amazingly successful investor, often repeats a valuable piece of advice about investing that also applies to business opportunities. (Applying the baseball analogy) “There are no strikes in investing.” In other words, even if you let a terrific opportunity pass you by, you will never be called ‘out’ of the game.

Once you’re practiced at this, you will become more aware that the world is full of interesting opportunities. Taking risks can make even the most experienced business person feel uneasy; if you feel deeply worried and have strong misgivings about an opportunity, let it go . Another ‘chance’ will soon come your way.