Taking Smart Risks Is Not The Same As Being Impulsive

taking smart risks in business

Taking risks in your career can be a huge boon – just consider some of the huge brands that have made calculated, smart risks which have paid off in spades. But then again, some risks turn out to be explosively bad (hello, New Coke). So how do you know which risks are the right ones, and which ones just feel right in the moment?

First, it’s important to define what a risk really is.

A risk is an action that you take that could potentially lead to a loss of value or valuable assets if it turns out poorly, but could also end with a net gain. You take a risk in your business or your life because the worst-case scenario, while bad, isn’t quite bad enough to outweigh any of the positive benefits.

A risk is not an impulsive decision that you’ve made in the spur of the moment. That’s just an impulse.

For example, if you’ve noticed that, in the past six months, you’ve seen a decline in clients in your freelance business, you might be spurred to act impulsively and, say, overhaul your marketing strategy, or change careers altogether. That decision – to change careers because of a few bad months – is an impulse.

However, if you felt that your heart was no longer in your freelancing business and, after a lot of thought, decided to change careers by going back to school, that would be a risk because a.) you’d calculated the pros and cons and b.) would be potentially at a loss of finances (school is expensive) and time in the workforce. The payoff, though, could be great – you might find a new career that you love.

But in that moment – the moment when you quit your job because your boss upset you, and not because you actually have a plan laid out – it can be hard to know what’s a smart risk and what’s an impulse, especially when so many outside forces have probably been confirming that quitting your day job to follow your bliss is the right path.

So how do you know if you’re taking smart risks or just acting on impulse? One of the best courses of action is to acknowledge your own shortcomings and biases.

People, generally, are notoriously bad at judging just how risky something is, and which risks are worth taking. This is called “risk assessment,” and the human brain — especially when coupled with human emotion and a human body — is just not that great at it. We tend to be inconsistent with what we’re willing to take risks on, particularly when the risk is in regard to our finances, and subtle elements, like surprise, can sway us deeply in our willingness to take risks.

Before you take a big leap, ask yourself:

–How ready am I for step two?

–What about steps five, seven, and 35?

–Do I have a plan, and if so, how am I going to carry it out? If not, why am I so sure this is a good idea?

–Realistically, what is the worst-case scenario? What is the best?

–Am I reacting, or am I responding?

Even after answering those questions, it can be hard to know when you’re taking smart risks and when you’re just upset, bored, or feeling otherwise unhappy with your current situation. And while being impulsive can sometimes be a good thing, don’t confuse acting on gut reactions with taking calculated, smart risks.

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Hanna Brooks Olsen is a writer and editor for CreativeLive, longtime reporter, and the co-founder of Seattlish. Follow her on Twitter at @mshannabrooks or go to her website for more stuff.