The surprisingly simple way to test your risk tolerance.

Starting your own business requires a special mindset. You have to have both a tolerance for risk, and a confidence that you will succeed despite the odds stacked against you. But how do you know if you have the right kind of entrepreneurial wiring? Before I launched my advertising and idea agency, The Weaponry I didn’t have a predictive test to evaluate my risk tolerance. But now I do.

Tom O’Hara

I recenly had a very interesting conversation about risk with my friend Tom O’Hara. Tom is EVP & Enterprise Risk Management Director at Huntington National Bank. Evaluating risk is a challenging task. You must find a way to assess risk tolerance in a way that people can easily articulate.

One question Tom poses in his risk evaluation is this little diagnostic gem:

If you have a meeting with the CEO of your company at 7am, and your commute usually takes 15 minutes, what time would you leave for the meeting?

The answer to this hypothetical question reveals a lot about your risk tolerance. If you say 5:30am you have a very low tolerance for risk. If you say 6:45am you have a very high tolerance for risk. If you say 7am you have trouble understanding the time and space continuum.

My big aha!

As Tom talked through this simple predictive test, a fake lightbulb went off in my real head. I applied the same evaluative criteria to my approach to catching airplanes. When planning my departure for the airport I don’t work off the standard ‘Be at the airport 1-hour ahead of time’ rule of thumb. I know that the check-in period for domestic flights ends 30 minutes prior to scheduled departure. But I don’t use the 30-minute rule either, because I always check in online.

Instead, I use the ‘What time will they close the door?‘ rule of thumb. I have always thought this was the only indicator that really mattered. As a result I am often the last person on the plane. Which has freaked out many of my more conservative coworkers. Yet, I can only remember missing a plane one time in my entire business career. And that was because I had the wrong departure time in my head. Stupid departure time memory malfunction!

What this says about entrepreneurship

Clearly I have a high tolerance for risk. Because those airplanes, they don’t wait (I heard that in a country song). That being typed, I am never unprepared for my  travel too and through an airport. I have timed my airport route to the minute, and I allow for a degree of error in traffic, difficulty finding parking, and for crowds at security. On the other hand, my drive to the airport makes me feel alive. So does owing my own business.

Key Takeaway 

Know thyself (but don’t call thyself ‘thyself’). If you have to be at the airport two hours  before a domestic flight you may struggle with the coo-coo crazy of entrepreneurship. But if you like rolling onto the plane just as it prepares to roll away from the gate, you likely have what it takes to stomach a couple of years of unpredictability. But there is no right or wrong answer to risk tolerance. There are just different types of rewards. So whether you are traveling for work or pleasure, always consider the rewards that make you happy when you file your flight plan.

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How to prevent your dreams from crashing into a ditch this year.

Have you engaged in some self-evaluation over the past week? I have. The start of a new year has a funny way of forcing us to take stock of what we have, how we look, the state of our careers, our relationships and the effects of our bad habits. Then, once a year, we take actions to course correct. But this once-a-year-course-correction approach is severely flawed. Almost as flawed as my ability to properly fold fitted sheets.

Life is a highway

Imagine your ideal life as a road. All you have to do is drive on it. Now, imagine you find yourself veering ever-so-slightly towards the ditch, or oncoming traffic. When should you make a course correction? As soon you recognize you are veering! But what if you don’t? What if you only steer once a year?

The problem with annual corrections

If you only make a course correction once a year, you will only ever make a maximum of 100 adjustments (and that’s making some generous assumptions about your longevity and the age at which you scribbled your first New Year’s resolution).

At just 100 adjustments over a lifetime, one of two things happens. You either veer far off course each year, or you travel really, really, really slowly to prevent winding up in the ditch before the end of the year. Either way, 100 lifetime corrections severely limits your ability to travel your ideal path.

Driver Safety Quiz

Question: How often do you need to make subtle adjustments when you are driving an actual car on an actual road?

Answer: Every few seconds.

What should you do instead?

It’s simple math.  An annual evaluation and course correction will allow you 100 chances to follow your true path. A monthly correction will provide you with 1200 chances.  Weekly evaluations provide 5200 lifetime adjustments. While a daily course correction will provide you with 36,500 chances to travel your true path (plus roughly 25 leap days which you can use as you please).

I’m not saying you need to course correct every day. I’m also not saying you shouldn’t.  But a weekly or monthly inventory check will dramatically improve your odds of attaining your goals and living into the life of your design.

So don’t wait until the end of the year. Start by re-evaluating your course today, one week into the new year. If you are not heading towards your own true north, make the necessary adjustments now. Keep recalibrating. And steer yourself exactly where you want to go.

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