Companies that are risk-averse give up opportunities and new ideas in favour of safe investment and steady profit.

Generally, this is a side-effect of short-term focus.

Short-term focus happens when you are publicly traded and driving quarter by quarter or if you are otherwise pushed by stakeholders and investors to deliver results in the immediate future.

In general, opportunities that are risks take investment and long-term perspective.

It can be hard to forecast the cost of the investment, the timeline, and the end return. This sways executives away from being willing to take risks.

However, growth requires a business to consistently add value and to do that you need to invest and take on risks.

Three signs that you are being too risk averse:

  1. You can’t identify a growth opportunity that you are currently investing in that has a return that exceeds a year.
  2. Your key performance indicators that you report to your financial statement users, and that you manage your executive and senior leadership team with are all financial without any leading indicator measurements. Measuring only current financial success will prevent you from sacrificing profit and revenue today for value added investments.
  3. All of your divisions, products or regions are focused on profit and you don’t have any area that is other business stages of life where the focus is revenue or scale. All businesses need to go through the life cycle of building demand and volume and brand as measured ultimately by revenue. Once the business model is solid and the market accepts the idea there’s eventually a need to automate, set up process and get the Org structure right which all requires investment in scale. Finally you can achieve sustainable and exponential profit once both stages are invested in. If you cut the investment stages off too early with a premature focus on profit you generally reduce the potential of the idea. And if you don’t have ideas in okay at different business stages you aren’t growing & you’ll eventually see decline or lose relevance.

We had an opportunity to contribute to an article on about risk –  it’s a hot topic.

Read the third-party perspective here: Always ‘playing it safe’ with investment decisions in a losing strategy.

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