Calculated Risk: 5 Lessons To Transform Business Decisions

In the world of business, calculated risk is essential for growth, but an equally important lesson is the impact of risks you avoid.

Many entrepreneurs find themselves looking back, not at the risks they took that didn’t work out, but at the ones they never took in the first place and majorly regret.

These missed opportunities, which seemed too risky at the time, can actually turn out to be the costliest decisions of all.

When faced with the option of starting a business or pursuing a traditional career path, many opt for what feels like the safer choice.

Take choosing university over entrepreneurship. Some people think that education is never a waste, but my experience was very different.

The time and financial investment is HUGE and it can lead to debt or a career misaligned with your true passion. In contrast, those who take the leap into entrepreneurship often find that the biggest risk was never starting at all.

Example: My Personal Story of Missed Opportunities

Probably the biggest risk I took that failed for eight years, was traditional education.

Instead of starting my own business at age 18, which would have felt like a big risk at the time because there's no guarantee of money, I went to university and did a degree in architecture which I've done nothing with and it got me well on the way to £50,000 of consumer debt.

And there were opportunities to start businesses that I never took.

I did actually start my part-time reselling business before e-commerce and reselling was a thing. This was 25 years ago, and this did quite well for me. But the money I made was going into my black hole of debt.

Then I started a side business as an artist. This did quite well for me other than I couldn't make any money because all the money was going into debt repayments.

So the biggest risks are the risks I haven't taken. I perceived them as risky, but I now know nowhere near as risky as not starting my own business earlier and not chasing my dreams.

This is a valuable reminder for anyone in business: inaction often carries a higher price than action.

When you avoid risk because it seems too daunting, you may miss the chance to learn, grow, and build something truly valuable.

Taking risks in business is unavoidable, but it’s crucial to differentiate between a calculated risk and a reckless gamble.

A reckless gamble would be something you do emotionally and whimsically, spontaneously as opposed to with research analysis and strategy.

Reckless would be to do something just because someone told you to or just because someone presented you with an opportunity.

You can get the right opportunity at the wrong time. You can get the wrong opportunity at the right time. They might be an opportunity for someone else or they might not, but they're not an opportunity for you, they're a distraction.

Reckless would be to just invest in something because someone tells you it's a sure thing, or because someone else told you they made money. Did you see the proof? Or perhaps they did make money like someone who invested in Bitcoin at the price of a pizza, but maybe things have changed.

Reckless would be gambling because of desperation. People are more susceptible to get rich quick or even to betting the more desperate they are.

Desperation in the form of being broke can be very motivating if channelled, however chasing out of fear and desperation will draw you into things that are too good to be true, or look easy but are very hard or wrong for you.

A reckless gamble would be something with no downside protection. Many gambles just tell you about the big upside reward, how much money you'll make, how easy it'll be, how fast it will be.

However, if it were that easy everyone would be doing it and a gamble becomes a calculated risk when you minimise or de-risk your loss and protect the downside.

For example, if I buy real estate investments for development or conversion, I make sure they would still work if I had to put them back to their original use and I could still get an income stream from them.

The worst that will happen is I'll spend some money on developing it. It won't work in that form and I'll put it back to its original use and I can just keep it.

With real estate, if you buy badly and hold for ten years, your mistakes will all be ironed out, they'll be forgotten and you'll have had capital growth and income.

When Richard Branson started his airline, he de-risked by having a give-back option on the aircraft. Instead of risking potentially hundreds of millions on buying the aircraft that he couldn't use, he had a give-back clause such that if the business didn't work, he could at least liquidate and get most of his investment back.

If you can de-risk an opportunity whereby the only thing you lose is time and not money, and in the pursuit of the investment or opportunity you were able to learn, even if you didn't earn, this is a good de-risk.

The final reckless gamble is timing.

People gamble at the peak of the market before the crash or at the peak of their desperation when they don't do any proper research.

When it comes to timing for investments in starting a business, the quotes from the billionaires stand true: "observe the masses and do the opposite", "be greedy when others are fearful and fearful when others are greedy", and "more millionaires are made in recessions than in any other time in the cycle".

Key Elements of a Calculated Risk

A calculated risk is based on thorough research and a deep understanding of both the opportunity and the possible pitfalls. This includes:

1. **Clear Objectives**: Knowing exactly what you hope to achieve.
2. **Risk Mitigation**: Having strategies in place to reduce potential losses.
3. **Multiple Exit Strategies**: Ensuring there are various ways to recover your investment or minimise losses if things go wrong.
4. **Timing**: Calculated risks are taken at the right moment, after observing market conditions and trends.

Example: Real Estate Development with De-risking Strategies

In property development, calculated risk plays a critical role.

In the last 18 years of building a property portfolio and some training businesses, the biggest risk myself and my business partner, Mark Homer, took was developing 100 apartment blocks.

We're pretty good at de-risking by ensuring multiple exit strategies if our planned revenue model doesn't work.

When we bought the block, we bought a project very cheaply for under £4 million. We already knew someone who would buy ⅘’s of the whole floor of the four story block for £3.6 million and we knew we could rent out ⅕ of the bottom floor for £50,000 a year.

So, just the bottom floor got all of our money back and we had four floors to develop up to 100.

But lockdown changed everything. There was a very real risk that the government would shut down developing when they shut businesses down.

This would have cost us £45,000 a month just in interest payments on the loans. The crane hire alone was £1,000 a day and the closed site could have cost us £60,000 or more a month.

We also found a reputable firm to do the development for us. In less that one month from starting our project they went bust and the first £300,000 we gave them to start the project went down with them.

So then we took another big risk which was to develop and manage the project ourselves.

We'd never done serious development project management, let alone on the 100 apartment block. But we decided to take the project on ourselves and we took some of the contractors from the firm we used who went bust.

We more than compensated for the £300K loss we had from the main contractor by making better use of the space, because we cared as it was our own project.

This project now has a more than a million pound income stream and worth £16 million more than we bought it for.

And probably even better is we now know how to develop big projects ourselves without paying main contractors, which saves us millions of pounds in the kind of deals we do.

We're now putting together a 450 apartment block and we know how to be the main contractor and project manage that throughout, saving millions of pounds with other contractors and the risk of them going bust, which is quite common in this industry.

As your business grows, so too does your approach to risk.

In the early stages of a business, many entrepreneurs are more willing to take large risks because they have less to lose. With no established reputation, minimal assets, and fewer obligations, they can afford to experiment and take bolder steps.

However, as a business matures and assets, employees, and a customer base grow, risk-taking can become more conservative. When you have more to lose - whether that’s financial capital, a brand reputation, or a legacy - the appetite for risk often diminishes. This is natural, as protecting what you’ve built becomes just as important as growing it.

But, reducing risk entirely can limit growth. Larger businesses must find ways to balance risk management with the need for innovation and expansion. This can mean diversifying investments, exploring new markets, or reinvesting in the core business. It’s also about understanding that calculated risks are still necessary, but they should be taken with more precision and planning.

Example: From Being In Debt to £20 Million Per Year

As my business has grown over two decades and gone from zero to in excess of £20 million a year in sales, I have to be honest, I have a lot more to lose, and perhaps I'm not as hungry for risk with a lower risk threshold.

Perhaps this is good because it protects my family, my brand, my business and my legacy, but perhaps my sales could be at £100 million if I had the same level of risk when I was young, no family, in debt, nothing to lose.

The entrepreneurs I know who've built unicorns are happy to put everything on the line in the pursuit of building one wildly successful business. And we need people like this because people like Elon Musk and James Watt of Brew Dog have built meaningful businesses, putting everything in, disrupted their industries and even changed the world.

Over the years, I've used my cash flowing training businesses to invest in real estate. We diversify our time and revenue into growing our business and growing our investments to protect against interest rate rises, lockdowns, legal cases, threats, market changes and the myriad of other threats that get bigger and bigger as you get bigger and bigger.

I'm all for risk. After all, I'm the guy that says "If you don't risk anything, you risk everything", but I believe in protecting the downside first and looking at your context and situation.

No professional investor would put all their money in one class or one sure bet, and maybe it's wise for entrepreneurs to not 'go all in' or 'go big or go home'.

You have to be a certain type of person or teach yourself to be a certain way to take big risks. You have to have nothing to lose or feel you've got nothing to lose. You have to back yourself to be able to start again if it all goes wrong.

Can you handle the shame and embarrassment publicly and from investors who you've lost millions of pounds from? High risk, high reward and highly reckless behaviour are very close together.

There are fine lines and if you want to embrace risk maybe a great way is to work for, invest in or learn from someone who has a higher risk threshold than you.

One of the most important lessons in business is that no matter how carefully you plan, unexpected challenges will come up.

These can range from market crashes and changes in consumer behaviour to natural disasters or global pandemics. The key is not just to plan for the expected but to be agile enough to respond to the unexpected.

The 2020 global pandemic, for example, blindsided countless businesses.

Many were forced to close or pivot entirely due to lockdowns and restrictions. Those businesses that survived and thrived were the ones that had built resilience into their models.

Example: Overcoming The 2020 Global Pandemic

The single most unexpected lesson about risk is that all things that challenge you greatly are unexpected, because if they were expected they wouldn't have challenged you greatly.

You can plan for everything, but in 2020 no business could have predicted the lockdown due to the COVID-19 pandemic.

This is my greatest most unexpected lesson about risk: you cannot de-risk anything to zero and as you go down the rabbit hole of protecting more and more risk factors, that becomes over-analysis because the thing that will get you is the thing that will blindside you.

Now you can generally and generically plan for the unexpected by having spare cash or liquidity. You can be agile and not bloated, be prepared to change fast. Don’t hold on to old ideals or business models.

These are character traits and strategies within your business that you can build into your model such that at any point when the thing you can't prepare for comes then you are actually ready for it.

Perhaps the most counterintuitive lesson in risk-taking is that the biggest risk is often taking no risk at all. It’s easy to fall into the trap of playing it safe, especially when things are going well. But staying in your comfort zone can lead to stagnation, missed opportunities, and ultimately, a decline in business growth.

Calculated risks are necessary for innovation and expansion.

Entrepreneurs who achieve great success often do so by taking risks that others are unwilling to take. They see opportunities where others see danger, and they understand that progress often requires stepping into the unknown.

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If you don’t risk anything, you risk everything.