Risky Business – Are You Risk Averse?

Ok, who isn’t thinking about Tom Cruise sliding across the hall in his skivvies right now.

Risk is tricky. Decision-making around risk; weighing the risks against the rewards (hello - the bigger the risk the greater the reward); collecting enough information to weigh the outcomes and probabilities (and when is “enough” enough?), and, if you are a woman, questioning yourself because you constantly hear the same rhetoric, women are risk averse. 

Being a founder is all about taking risk. Constantly. There is a high probability of failure – 21.5% in year 1, 50% within 5 years.

Business risk is gender-neutral but there are nuances as a female founder.

Think Like a Man?

I recently had a conversion with female co-founders, one of which had said to someone that she was risk averse and the response was, really, you left a stable job to start your business!

At the time of our conversation, they were considering investing a significant amount of capital on a growth strategy that came with considerable risk. Would it stretch them too far? It would be difficult to course correct if it went south.

Yet, on the call we weren’t talking about the potential risk/reward or how to assess the risk. Instead, they were asking themselves, if a man were making the same choice, would he just go for it? Were they being overly risk averse?

Similarly, this week I was listening to Bethany Frankel’s podcast with the female co-founders of The Skimm, an undeniable success. Bethany was asking about how they thought about risk vs. their husband/fiancé. They acknowledged that they felt they were more risk averse generally. At one point, they said we started and built The Skimm, isn’t that enough.

Interestingly, they tied this to a worry about money and constantly thinking about it. This could lead us down the rabbit hole of women and their money mindset. But for another day. Yet, no doubt money mindset is one underlying factor along with evolutionary factors, societal norms and narratives, and psychologically.

Fear of Failure

Talk about gender neutral, most people have a fear of failure. What studies have shown is that women have a greater fear because they hold themselves to higher performance standards.

Further, when they do experience negative outcomes, they tend to be more discouraged or have stronger emotional reactions. If being a founder is about constantly taking on risk, pushing boundaries, experimenting, and failing fast…what does that mean for female founders who take those “failures” harder?

Does this impact their ability to scale? Scaling means taking bigger bets, the stakes are just that much higher. The investments greater, the team you are responsible for is bigger, maybe you have investors that you don’t want to let down.

Is that the difference between throwing yourself and all your savings (maxing out the credit cards) into a business and scaling the business?

A paper out of Australia found that once female founders cross $500k in revenues they consider risk differently.  Their personal risk tolerance decreases and their focus on asset protection increases.

Silly vs. Strategic

Rather than perpetuate the idea that women are more risk averse, is there an argument that women just take more calculated risks, are more intentional about assessing the risk?

Women analyze more/longer, collect more data, consider potential outcomes and ways to mitigate downside risk, and how to get out of a mess if it happens.

A 2021 BMO Wealth Management Report found that 72% of female entrepreneurs feel very confident making risk-related business decision, compared to 64% of male entrepreneurs.

A study by the Centre for Entrepreneurship in partnership with Barclays, found “[w]omen entrepreneurs have a more nuanced view of risk, identifying more strongly than men as financial risk takers, while remaining concerned about “fool hardy risks.”

Nobody should dive in blindly when taking risks. You should develop a robust framework for analyzing risks and planning out risky projects, investments, or strategies. You have to balance your excitement about the potential upside with the potential downside.

What's the most critical factor in any business decision you'll ever have to make? Basically, it boils down to this question: If this all crashes, will it bring the whole house tumbling down like a pack of cards? One business mantra remains embedded in my brain - protect the downside.

 – Richard Branson