How billionaires approach risk
As an entrepreneur, I was always interested in how the best people in business think and act - especially self-made billionaires triggered my curiosity. I couldn’t fathom how it is possible to create wealth going into billions of dollars in just one life span. I made myself on the journey to discover the secret of billionaires’ phenomenal business performance, to answer the question: what in their personalities made them so extremely successful in business.
I spent six years of my life traveling the world, meeting and interviewing some of the wealthiest people on the planet, all of them self-made billionaires. Today I know and have interviewed 36 self-made billionaires from different countries, cultures, religions, industries and age groups. I published the results of my research in the book “The Billion Dollar Secret”.
One of the questions I wanted to get answers to is how billionaires approach risk.
There is no way around taking risk if you want to be successful in business.
The billionaire Jack Cowin, who brought fast food to Australia, states “You have to take risk to achieve something that is worthwhile. If you don’t take some risk, then you’ll have moderate success, if any. If it doesn’t require risk, it’s not an opportunity.”
According to Naveen Jain, an American space billionaire, “Every company you start is a risk to your reputation, is a risk to your wealth, and is a risk to the number of people who believe in you and they quit their job and come and join you. Their life depends on my not screwing up. So to me, it is a massive burden on me to make sure I don’t fail because their lives will change. And I have looked at their wife’s eyes and they’re looking at me saying, please don’t f*ck it up.”
Interestingly, billionaires don’t see intelligence as a prerequisite for their extraordinary business success. They stress that entrepreneurs are adventurous rather than intelligent.
This is what Sergey Galitskiy, the internationally most respected Russian billionaire, noticed when he had been working for a bank, before he got involved in his own business. “When I communicated with clients in the bank, who were businesspeople, I felt how intellectually weak they were. But I was impressed by the way they think. So these were people not of a smart mind, but rather of an adventurous mind. And this made a big impression on me.”
But risk can kill your business. Billionaires never bet the shop. They protect their downside.
Manny Stul, an Australian billionaire and the World Entrepreneur of the Year 2016, likes risk like nobody, but he wouldn’t risk everything even on a bulletproof venture.
I like taking risks. It’s in my nature. But don’t bet the farm on anything! I don’t care how good it is and how it appears to be a no-brainer and how it appears to be guaranteed.
I asked him if that would also be the case at the beginning, when you don’t actually have anything. His response was:
Well, then what have you got to lose? If I lost everything when I started, there wasn’t much to lose. I was probably taking bigger risks then. But certainly nothing that would ruin my life, if you know what I mean.
Billionaires assess risk carefully and make sure they can afford it when they take the risk.
Cho Tak Wong, a Chinese billionaire and the World Entrepreneur of the Year 2009, recommends to “do an analysis and estimate what risks could be in a given project,” and only take risks that you can deal with.
It is also foolish to take unnecessary risk that doesn’t bring you closer to your objectives. I asked Jack Cowin what he avoided in business. His answer: “Unnecessary risk. Risk is necessary, but don’t do things which are superfluous to what the end game is.”
But billionaires look at the potential of things and focus on it, not only at the downside.
So what is the winning formula with regard to risk?
It’s quite straightforward: take calculated risks with the best risk/reward ratio instead of “betting the shop.” In other words, take the risks you can afford that have the greatest upside and the smallest downside.
