Why Being Risk Averse Is Risky

Have you ever heard a business success story that did not involve risks? Entrepreneurs have to bet big to win big, and the tales of many breakthrough companies include a chapter in which the founder almost loses everything. The ones who find a way through the dark times end up seeing the largest returns. Those who are risk averse create the lowest ceiling for a new venture.

The importance of thinking big

Building a new product may require the use of materials not in mass production. Therefore, betting big on the concept may involve making a side bet on suppliers helping send your goods to market. Large corporations can afford to invest in other companies to help them grow, but entrepreneurs have to find a more creative solution.

The Tesla Motors creation story offers a few examples of how this dynamic works. Tesla CEO, Elon Musk, had to depend on foreign battery suppliers when starting his electric car company. Without assuming a high level of innovation and adequate production of elements out of his control (a risky proposition), the automaker could not put these vehicles on the road. When the company found success with the Model S, starting the company's own battery facility became possible. Now, Tesla has its sights set on the mainstream automobile market with its Giga battery factory.

Risk averse at its riskiest

According to The Wall Street Journal, avoiding risk was a key factor behind the slow economic recovery after The Great Recession and the downturn the United States experienced in 2001. Companies held onto cash reserves rather than investing in new employees and technology. Investment groups were equally sheepish about backing entrepreneurs who sought funding to start new projects. As a result, the pace of added jobs and localized business booms was slower than it had been during periods of economic strength.

Data collected after the recession also revealed that employees were taking fewer risks in the workplace. Rather than leaving a dead-end job to plunge into a more lucrative job market, many workers chose to stick with their jobs in the past decade. This trend seemed prudent in a time when many people lost their jobs, but it does not reflect the culture of optimism, in which risk takers increasingly find success. Betting small and winning in small increments has not been the approach of any success story.

Risks worth taking

Small business owners are right to be risk averse when their life savings are on the line and their family's future is at stake. Identifying which risks are worth taking is the key to winning these big bets. For example, if you have done the research and know your product can penetrate the market upon arrival, taking on debt is not as risky as it may seem in the moment.

Alternative forms of financing, like using Kabbage to secure a loan, are worth your attention, as well. Whether you take on a loan or dive into the world of crowdfunding, this may be the financial boost you need to get that business idea off the ground. Sometimes, considering what you stand to win is more important than dwelling on what you stand to lose.

Being risk averse is a necessary trait for smart business owners. However, you cannot let your company be held back by a fear of all risks. Use these tips to know when to pick your battles and push your company to new heights.