5 insights on managing risk in entrepreneurship
5 insights on managing risk in entrepreneurship
March 1, 2023 | By Gerry Gitner
I have spent the past four decades building a career as a founder, CEO, CFO, director, and chairman of companies.
One of the things I have learned along the way is the difference between being entrepreneurial and being an entrepreneur. If things go wrong, it’s the difference between going to work the next day or being out of a job. Plenty of people within an organization can be entrepreneurial, but to call yourself a true entrepreneur, you must be willing to put your own reputation, financial status, and career on the line.
Risk is the essence of entrepreneurship. Below, I suggest five ways to manage it more effectively:
1) Be honest with yourself about your skills and limitations.
I don’t subscribe to the idea that anyone can learn to become an entrepreneur, just like I don’t think just anyone can become a world-class musician or athlete. Teaching entrepreneurship is less about teaching something new and more about drawing out an inclination that already exists. In a group of 100 MBA students, perhaps a dozen will be natural-born entrepreneurs and the rest will go on to become fantastic CEOs, directors of human resources, and so on. Take an honest look at yourself and determine whether you truly have the skills, preferences, and, most importantly, the appetite for risk that you need to succeed in entrepreneurship. Determine whether you are more attracted to the security of a high salary and benefits package at an established firm or to the uncertainty of starting your own business. They are two equally valid but vastly different options. Know your interests and know your limits.
2) Determine your ability to rebound after failure.
In 1980, I left a secure, well-paying job at Texas International Airlines to co-found People Express Airlines. Earlier that year, my house in Houston was burgled and everything of value was taken. I used the insurance proceeds to invest in the business. I bet everything I had on its success. That venture ultimately succeeded, but I felt comfortable that if it failed, I would be able to get another job in the industry. I never speak in terms of being able to “afford” losing money—you get into a new venture to win, not lose. But decide ahead of time whether you can accept the emotional and financial burden of losing if it happens. Think about your potential to find another stream of income if you need to change direction.
3) Listen and observe more carefully.
I was once notorious for finishing other people’s sentences and asking a second question before they had the chance to answer the first one. Over time, I learned to let people talk. When I became CEO of Trans World Airlines in 1996, the airline was known for its poor customer service. This is a deadly risk in a business where all your friends remember is the last cancelled flight or lost bag—and even more so in a startup environment where you have yet to build your brand name. Whenever I would fly on one of our planes, I would take the time to listen to people’s concerns and look around for any maintenance issue, even as small as a broken seat. Gradually, the company culture began to change, and we won successive J. D. Powers awards for best customer service a few years later. Take the time to listen and gather information.
4) Prioritize your own time above all.
Aside from your health, your time is the most valuable thing you have. Make sure it is spent in the highest and best use. Ironically, minimizing risk may require cutting your losses and avoiding people who cannot be convinced to take a necessary risk themselves. At one point, I was CEO of a failing company that had tried and failed to turn itself around. I began walking into people’s offices and asking them what options they had pursued. If they could only recite what hadn’t worked instead of offering up novel solutions, I would let them go. If they weren’t willing to risk taking a different direction when the company was sinking, they weren’t right for the company. In situations like these, management by subtraction is often the best strategy for staying afloat.
5) Strive toward the optimal, not maximum result.
Success is all about the art of the possible. I have often spoken to groups of business professors and students who ask why I did something a certain way. My answer has always been that I did what worked at the time. The best equations in the world can’t account for reality on the ground. Many days, you are simply scrambling to solve a problem in a way that inspires the people who work for you to show up again the next day. Focus on what is tangible and reachable, not on what is ideal.
Gerry Gitner '68S (MBA) is a former aviation and finance executive who has founded, chaired, and directed businesses across industries.
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