Smart Risks

A new book says that making smarter bets is your key to better luck tomorrow.

Some people have all the luck. Or do they? Eileen C. Shapiro and Howard H. Stevenson, authors of Make Your Own Luck: 12 Practical Steps to Taking Smarter Risks in Business (Portfolio, May 2005), think something else is going on. "Humans crave predictability," says Stevenson, a professor of entrepreneurial studies at Harvard Business School. "But in reality, every decision is a bet. The question is, how can you make better bets?" Luck, after all, is just a matter of odds, and improving yours comes down to "predictive intelligence" -- the ability to act in the face of uncertainty. Here's how to look like one lucky SOB.

1. Check your rearview mirror.

Hindsight is 20/20, so determine your goal first, then think backward. The key is to prioritize, while minimizing the number of bets you'll make. "Think of The Dating Game," says Stevenson. "You can't check out all the possibilities. If you like rugged outdoor types, you don't join the chess club."

2. Make your bets serve your goals.

In the summer of 2002, Procter & Gamble had committed itself to building customer loyalty. So when Kimberly-Clark raised diaper prices, P&G answered by slashing prices of its own brand by 15%. P&G suffered five months of profit loss before winning increases in market share and bottom-line numbers.

3. Spread your bets.

Take a few small risks on the unknown. At Microsoft in the early 1990s, the Internet represented a "rat hole" that risked draining resources for uncertain reward. A side bet to develop a browser saved it from dropping further behind.

4. Relieve your "I" strain.

That's "I" as in, "I can do it all." Find ways to share your risk with others. Before it became a cable staple, the Weather Channel's survival depended on cable systems' buy-in. So it charged a low five-cents-per-subscriber fee to reduce the risk.

5. Know when to place a new bet.

Many believe that entrepreneurship is all about single-minded focus. But "the ones who succeed," says Stevenson, "are the ones who say, 'I'm stymied, but I see an opening here. How do I go from here?' " Exhibit A: Intel. In the 1980s, it saw that its core DRAM business was becoming commoditized. It had to exit the market -- and invest in integrated circuits -- to keep its industry lead.

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