Balanced Risk-Taking: How Successful Founders Make Calculated Decisions
Successful entrepreneurs take risks, but they don’t gamble. They calculate.
At Evergreen Mountain Equity Partners, we’ve studied what sets great founders apart in our Entrepreneurial Adaptive Innovator archetype, and one of the key traits we’ve identified is Balanced Risk-Taking. This is the ability to take risks that are measured, strategic, and calculated, allowing businesses to grow without jeopardizing everything.
In this post, we’ll look at how Reid Hoffman, co-founder of LinkedIn, and Jeff Bezos, founder of Amazon, masterfully use balanced risk-taking to achieve success. We’ll also explore how you can apply their methods to your own business.
What is Balanced Risk-Taking?
Balanced risk-taking is the art of knowing which risks are worth taking and how to manage them. Successful founders don’t shy away from risk, but they do everything they can to make sure the risks they take are calculated and informed by data.
Reid Hoffman and LinkedIn: Calculating Market Opportunity
When Reid Hoffman launched LinkedIn, he didn’t jump into the broad social networking space like Facebook. Instead, he made a calculated decision to focus on a professional niche. Hoffman recognized that professionals needed a platform for career advancement, and by focusing on this underserved market, he minimized risk while maximizing potential returns.
Jeff Bezos and the One-Way/Two-Way Door Framework
One of the most powerful risk management frameworks comes from Jeff Bezos at Amazon. Bezos categorizes decisions as either One-Way Doors (irreversible decisions) or Two-Way Doors (reversible decisions). One-way door decisions, like acquiring Whole Foods, require careful planning and analysis because they can’t be easily undone. Two-way door decisions, like experimenting with a new feature on Amazon’s website, allow for quick action and can be reversed if they don’t work.
This framework encourages Amazon’s teams to innovate and take risks in low-stakes situations, while being cautious with high-stakes, irreversible decisions.
How to Apply Balanced Risk-Taking in Your Business
Categorize your decisions: Is it a one-way or two-way door? Move quickly on reversible decisions, but take your time with irreversible ones.
Experiment without fear: Use low-risk situations to innovate, knowing that you can adjust or reverse course if needed.
Plan carefully for high-stakes moves: When facing a one-way door decision, be thorough in your analysis, and make sure the potential reward justifies the risk.
Want to learn more about the traits that make founders unstoppable?
Download our free white paper, Understanding the Behavioral DNA of Successful Founders, to explore how Balanced Risk-Taking and other traits can help you build a thriving business.
