The Cost of Risk Avoidance

Tom Panaggio

November 20, 2018

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Marketing Guru Seth Godin in a blog asked; "How much does it cost you to avoid the feeling of risk?" He wasn't talking about actual risk only "the feeling that you're at risk," that mental checklist that we all review before deciding to do something. Godin concludes, correctly, that we rationalize risk avoidance as a "no cost" option and perfectly acceptable.

"Hey, at least I won't lose."

Risk avoidance is the greatest impediment to progress, whether personally or in business. The cost of avoidance is not considered for the simple reason that we can always justify mitigation of risk. We have been conditioned for self-preservation and validate avoidance with "I didn't want to lose." Yet this is hardly a zero-sum game.

Avoiding risk means passing on opportunity, and that has a cost.

Opportunity, like time, is perishable. Miss an opportunity to move your business forward due to risk avoidance and competitive advantage could be lost. The cost is an erosion of market share, revenue, profit, employee flight, or the decline of your business. The very thing you were afraid of, the risk of losing, has become a self-fulfilled prophecy.

Seth Godin also says that "we've created a cultural taboo about feeling certain kinds of risk" which causes us to insulate one's self from it. I would say the "everyone gets a trophy" philosophy in youth sports is a prime example of Godin's premise. By supposedly insulating children from the risk of disappointment, we only postpone the reality of life. Failure is not a question of "if," but always a question of "when."

After a 30 year entrepreneurial career, looking back on what was responsible for success, it became obvious it was a risk. Those who were willing to embrace risk, each and every day, were successful. They had a "play to win" attitude rather than a "play not to lose" outlook. And when you play to win, a risk is nothing more than a cost of opportunity.

The reality is true opportunity always comes with risk. Those who avoid risk out of fear, to seek certainty in life, are prisoners of hope, trapped by the unrealistic expectation that opportunity can come without a cost. What they miss is that the cost of certainty is imprisonment in a false reality. Certainty robs us of a just reward, the very incentive that motivates us to pursue an opportunity in the first place.

The fallacy that risk avoidance somehow is without a cost and therefore an acceptable strategy, fails to consider opportunity cost, or the benefit one sacrifices by making one choice over another. Too often opportunity cost is disregarded because we base our decisions on superficial criteria or the immediacy of a potentially negative effect.

Personally, such a scenario would have cost me millions of dollars had I only considered the near-term risk versus the long-term benefit. Early in the life of one of the companies I co-founded, we were at a critical decision point: change our business model and head in a completely different direction or stay the course and continue with our original strategy which was successful. Conventional wisdom, which Godin refers to as cultural taboo, would suggest that we stay the course, as that avoids the risk of being wrong. However, we made the change, followed the new strategy, and dominated our market.

Clearly, the acceptable decision to maintain our original strategy was the lower risk alternative. Traditional business logic would have justified our choice had we just carried on, and the potential cost of this mistake would be rationalized away with the "we just weren't willing to risk it." Sadly, we would have been applauded as prudent and wise in spite of the millions that were sacrificed.

Prisoners of hope avoid risk because of the fear of failure, and ironically, this avoidance becomes a self-fulfilling prophecy. They accomplish nothing because of risk avoidance, and the only certainty is failure. It is only by embracing risk that we get an opportunity. And, an opportunity is what provides us reward and thus freedom.

Risk avoidance is not limited to entrepreneurial pursuits either. The artist, performer, or athlete who fears rejection of their work or efforts will avoid the desire to express themselves and be deprived of the reward—accomplishment. Meanwhile, a passion will be trapped within a self-imposed prison because we mistakenly assume that a life free from risk costs us nothing.

Risk means having to face an uncertain outcome. And let's face it: Most people do not like uncertainty. But if you are to follow your dream you are going to have to stare risk down and conquer it. There is simply no alternative.

Tom Panaggio has enjoyed a 30-year entrepreneurial career as co-founder of two successful direct marketing companies: Direct Mail Express and Response Mail Express. He is the author of The Risk Advantage: Embracing the Entrepreneur's Unexpected Edge.

Opinions expressed by the author are not necessarily those of WITI.

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