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How To Know When A Risk Is Worth It

Tired of standing on the edge of a big chance, unsure of whether to jump in? Here’s how to know when to back off, or dive.

How To Know When A Risk Is Worth It
[Photo: Flickr user Matija Culjak]

Whether you like it or not, taking risks is a big part of entrepreneurship (and certainly part of life).

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But being able to take risks doesn’t mean recklessness or neglecting your jump strategy until you’re at the edge of the cliff. It means being able to let something guaranteed go in exchange for the possibility of something greater down the road.

How do you know if that risky jump is worth it? According to businessman Mark Cuban, you won’t ever know ahead of time. But “if you are an entrepreneur, you already know you’re doing it,” the owner of the Dallas Mavericks tells Fast Company.

In short, if you don’t really know that a risk is worth it and you decide to jump anyway, then you’re meant to be an entrepreneur. If you don’t have the guts to do it, then you’re not ready to take on the sleepless nights, the doubts, and the anxiety that will be your startup life.

The First Leap Is The Hardest

You’ll never feel ready, but you’ll know when it’s time.

When Paul Berry decided to leave his longtime role as chief technology officer at the Huffington Post–where he was credited with the site’s massive SEO success–to do his own thing, he knew it was time to go.

“At the Huffington Post, I had 60 people reporting to me. Then we got acquired [by AOL] and I had 400 people reporting to me,” says the founder of social platform Rebel Mouse. “It became clear to do my job, I would have to be a turnaround person. I am very good at building teams, building things from scratch,” but the role wouldn’t require that kind of skill.

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“One of the best pieces of advice I ever got was from Ken Lerer, cofounder of the Huffington Post,” Berry continues. “We get confused that it’s is a business decision when launching a company. It’s actually a personal decision. Thinking that it’s a business decision can be very distracting.”

Before taking the leap, Berry got feedback about Rebel Mouse by telling people about the company, then asking them what they thought. He didn’t reveal that it was his company until after they’d provided their thoughts.

If you say “Hey, what do you think about this company?” instead of “I’m going to leave my job for this company,” you will get a more honest answer because “they won’t think about your fragility,” he advises.

Next, Berry says you need to think about who else is going to dive off the cliff with you, whether that’s a cofounder or investor.

“I don’t know anyone who jumps off the cliff by themselves,” he says.

Believe In The Jump

The only way you have a chance of surviving is if you believe that you’ll make it.

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“When you do decide to leap, you’re in … you’re all in,” says Bayard Winthrop, founder and CEO of American Giant.

“You have to really believe that what you’re doing is going to work.”

Winthrop founded the online apparel company in 2011 when he saw the need modern consumers have to connect with brands. They want to know where their clothes are made, how it’s made, and who makes it. Instead of connecting with consumers the way that they want, brands pour millions into marketing and advertising.

“Important brands are really driving love, brand passion into their consumers,” he explains.”You see Warby Parker do it in the glasses industry. Uber in the taxi industry.”

To drive brand loyalty, Winthrop relies only on word of mouth and social media for his marketing efforts. He promises his clothes will always be made in the States and sold through a direct-to-consumer business model to keep prices down.

Winthrop credits American Giant’s success today to the “conviction” that he had in his business model.

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“There were times when I would wake up in the middle of the night and be in complete panic,” he says “I’m going to launch a business that relies solely on word of mouth. At the time, it felt very risky. I was doing it with quite a bit of debt early on … the idea was compelling, but it felt scary.”

You Survived The Leap. Now What?

If you survived the leap, believed in yourself and in the process reminded yourself every day of why you made that jump, know that the days that’ll follow will continue to be challenging.

People who decide to take this leap of faith are typically characterized as risky or eccentric, but Peter Thiel and Blake Masters write in their new book Zero to One that business actually needs more “founders who seem strange or extreme,” because “we need individuals to lead companies beyond mere incrementalism.”

After you make that initial leap–and have made it to the other side–there will be a lot of distractions along the way. Berry calls these “the attractive distractor” and you’ll have to continue reminding yourself of why you started the company in the first place to beat the attractive distractor’s spells.

“It might be awesome, but is it really going back to the core? When you think about why you started the company, is that why you did it?” says Berry. If you’re going to build a feature, don’t do it because it’s cool. Do it because it’ll solve a lot of problems for your team and consumers.

You might not ever truly know if a risk is worth taking, but you’ll definitely know it’s time to do it when you have the itch to jump.

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About the author

Vivian Giang is a business writer of gender conversations, leadership, entrepreneurship, workplace psychology, and whatever else she finds interesting related to work and play. You can find her on Twitter at @vivian_giang.

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