Recently, I had the opportunity to talk with Tom Panaggio, entrepreneur, strategic advisor, speaker and amateur race car driver about taking risks, winning, and using failure to propel success. Tom is the author of The Risk Advantage: Embracing the Entrepreneur’s Unexpected Edge.
The 2 Big Advantages of Risk
Why is risk an advantage?
There are two big advantages to risk.
First and foremost risk is directly connected to opportunity. Every opportunity must have an element of risk or there will be no benefit. Risk is the cost of opportunity. All businesses and organizations must be in a constant state of forward progress because of competition and the ever-changing demands of customers. Therefore, as an entrepreneur or business leader we must continuously seek out opportunities to meet these demands. A leader who recognizes the vast importance of forward motion for their organization accepts risk as merely a cost of opportunity and then actively endorses this philosophy throughout his business in setting the stage for long term success.
Secondly because most people have a tendency to avoid or minimize risk, those who have the courage to embrace it already have a competitive advantage. For example my company was a non-stop marketer. We knew that our competition was not willing to risk the investment in marketing to the degree that we were. So we took advantage of their unwillingness to risk the marketing dollars and dominated our market space by out-marketing them. We put ourselves in a position to win by embracing the risk of marketing.
How do you encourage the appropriate amount of risk?
It is important to understand that my position on embracing risk does not advocate blindly engaging in any and all opportunities regardless of the potential outcome. But the only way to achieve long term success is to have the courage to embrace risk each and every day. With that said, there is no standard to determine what level of risk is appropriate, and there is only a blanket rule of thumb that can be generally applied. That’s the great challenge of being a business leader: recognizing worthy opportunities. Any opportunity that is void of a sufficient benefit or is described as “no-risk” should be avoided. Each situation that requires one to embrace risk must be evaluated on a unique basis.
If pressed for an answer, I would say that we always start with the end to determine if this is an opportunity worth pursuing. What is the reward or benefit the company receives from committing to this opportunity? If an opportunity provides little reward or doesn’t help with the company’s forward motion, then we limit the amount of risk. If the opportunity can change the competitive landscape for the company or increases the value your product or service has for your customers, then the level of risk increases by the potential return.
Everyone wants a formula or template they can apply to all business situations. That shifts the responsibility from the business leader to the formula. But in the end, business leaders need to rely on their gut intuition and have the courage to step outside the comfort zone.
Adapting A Winner’s Mindset
How do you adapt a winner’s mindset?
This is really a difficult concept to grab hold of because human nature is pushing us to play not to lose rather than to go for the win. A study was done and it found out that most people get twice as much joy from not losing as they do from winning. Lose aversion creates risk aversion: “I don’t want to lose what I have.”
My father was a basketball coach so from a very early age the idea of winning was a way of life. I was conditioned to want to win and, therefore, not only to think like a winner, but more importantly ACT like a winner, which means having the internal drive that says, “I want to win” and then focusing on preparing for competition, execution and moving forward.
The truth is business does not support the theory of, “It’s not whether you win or lose, but how you play the game.” In business you not only better play the game right, but you have to win, too. Competition in business has no level of compassion, you either want to win and then act like a winner or you get eliminated. So if you do not possess a winner’s mindset when you launch a business, the odds are you will not succeed.
Using Failure to Succeed
How do you use failure in a positive way?
We are still human, so failure is unfortunately inevitable. But it’s what happens after a failure that is most important. The good news is the mere fact that we failed means we were making something happen, we were doing. And that’s the first positive aspect of failure. Failing in the pursuit of innovation, meeting the competitive challenge or as the result of productive effort is okay because it means we are trying to move forward.
What failure does for us is, it tells us we are going in the wrong direction. Unfortunately it will not give us the right answer; life just isn’t that simple. We are still responsible for seeking and finding the right answer, but we now know that the direction we were heading in was wrong. On the positive side, we have eliminated a way something won’t work and are closer to finding the right way. Look at all the failures in history who are some of our greatest innovators — Thomas Edison, Henry Ford, and Steve Jobs. Edison alone had over 1000 patents, yet he admits to failing 10,000 times.
The irony of success is it doesn’t necessarily have the same impact as failure. Touch a hot stove and you will never touch it again. However win every game and the “if it ain’t broke don’t fix it” attitude makes it difficult to accept necessary change.
Finally my advice to any business leader is encourage a culture of failure. This doesn’t mean promote sloppy work or mistakes. What it does mean is we don’t penalize employees who are taking the initiative to find a better way or innovate and miss an objective. When employees get their hands slapped for trying something new, in a sincere effort, they retreat into a self-preservation mode and creativity stops. Encourage a culture of failure, and your company will become an ever flowing well of innovation and creativity.
Admitting when you’re wrong is one concept you share. Would you explain why this is important to success?
The foundation of the tallest buildings must be strong enough to support the framework of the building as well as everything and everyone inside. All the stresses that are exerted on a building are absorbed by the foundation. For a business leader their foundation is their character, and a strong character cannot only support the success of a business, it will also absorb the stresses exerted upon it. A strong character means a strong foundation, and a leader with strong character has the honesty, humility, and integrity to accept they are not infallible.
When a leader lacks the honesty to admit they made a mistake, they waste precious resources and prevent the organization from pursuing other opportunities. The weak leader becomes a prisoner of hope, hoping that this flawed pursuit miraculously becomes a success. The whole organization can become disillusioned when it is obvious their leader is too stubborn to admit a mistake.
By admitting to a mistake a business leader can enjoy the act of redemption, moving on from a failure and thus making the business and every employee stronger. Everyone will have the ability to withstand the trying moments that certainly lie in the future.
Talk about the concept of “standing in your own line.”
I must credit the abundance of theme parks in Central Florida, where I live, and the incredible lines that are standard there for helping me create this concept. After a weekend trip to one of the Orlando theme parks and the painful experience of the long lines in the hot Florida sun, I came to the conclusion that if the CEO of this theme park had ever stood in his own line, things would dramatically change. Then I got to thinking about my company’s “line” and do my customers have a painful experience every time they place an order?
Wait in any line, whether it’s at a theme park, at the local coffee shop, or on the phone waiting for help with a problem and have a negative experience and the concept of standing in your own line should hit you like a right hook. But how many business leaders know what their company’s “line” is like? My guess is few really know what it is like because they assume that a good product will always trump a poor experience.
Customers want full value and this not only includes a quality product or service but also the total experience in purchasing, delivery, order processing, customer service, and the disposition of any person connected to the company with whom they have an interaction. A great product combined with a poor customer experience amounts to a potential loss of a customer. They always have an alternative to your company.
A truly committed business leader has the courage to stand in their own line and holistically evaluate their customer experience. Competition is too intense to allow a poor customer experience to erode a customer’s perception of value. Embrace the risk of standing in your own line and find out where you can improve and what changes are needed to meet and exceed your customer’s expectations.
The Risk Advantage: Embracing the Entrepreneur’s Unexpected Edge.