Risk Taking in Sales

 

"But risks must be taken because

     the greatest hazard in life is to risk nothing.

The person who risks nothing, does nothing,

     has nothing is nothing."

from To Risk by William Arthur Ward

 

Not all risks are created equal. Actually, the ones you take every day can be easily categorized as either "smart" or "dumb."

Running a red light is dumb. Designing 5,128 prototypes was smart for Dyson.

The opposite of taking a risk is to play it safe. Doug Sundheim, in his book "Taking Smart Risks," lists five common dangers of playing it safe for too long:

• You don't win.

• You don't grow.

• You don't create.

• You lose confidence.

• You don't feel alive.

What Sundheim is advocating is a change in our mindset regarding risk. Rather than perceiving risk as negative, we should view it as a balanced focus on both the downside of taking risks and not taking risks. A limiting mindset versus a liberating mindset.

The Sales Academy shares examples of risk-taking in sales: "You take risks in a lot of ways.  As a salesperson, when you call on a different type of customer than that with which you have become comfortable, you take a risk.  For example, when you call on the Chief Financial Officer of a business instead of just the production supervisor, you've stepped out of your comfort zone and taken a risk."

And a few have figured out how to spend their days taking smart risks that improve their lives and propel them to new levels of success with little chance of ending up dead, homeless, or any other number of unappealing adjectives.

Tyler Tervooren created a simple equation, The Smart Risk Equation, to guide you towards smart risks that improve your life and away from dumb ones that subject you to unnecessary loss:

The two important variables in the equation are Potential Loss and Potential Reward.

Potential Loss means, "How bad will it be if there is a complete failure?" You might rate it on a scale from 0 to 9, with 0 being no loss at all and 9 being some sort of horrible, unacceptable loss.

Potential Reward means, "What's the outcome if there's success?" You can rate it on the same 10-point scale, with 0 being no reward and 9 being a life-changing, nearly unfathomable reward.

The approach is just to assess how bad or good things could be if you take any given risk. The simple equation is:

RQ (Risk Quotient) = PR (Potential Reward) ÷ PL (Potential Loss)

A smart risk is one where RQ ≥ 3. Anything below that, and you're taking a dumb risk.

Now, it looks like a mathematical formula, but it really is not one. The two variables you assign values to will differ depending on the person doing the equation. We all have the ability to interpret the same situation differently. What looks like a smart risk to one person may be a dumb one to another.

The Smart Risk Equation is simply a framework you can plug your own variables into that will help you draw a picture of the risks you want to take in your life.

There are other phrases that are being used to label a risk as "smart":

Intelligent Risk: An opportunity in which the potential gain outweighs the harm or loss that could impact the organization's sustainability if the opportunity is not explored.

Calculated Risk: A chance taken after careful estimation of the probable outcome. This term uses calculated in the sense of "planned with forethought."

The Right Risk: Risks that are more deliberate and intentional, allowing you to make wise and courageous choices.

Now, let me apply Tervooren's formula to a couple of sales scenarios:

·       Calling on the CFO instead of the production supervisor: RQ (3.5) = PR (7) ÷ PL (2) = SMART

·       Calling on an account that is a long shot: RQ (3.5) = PR (7) ÷ PL (1) = SMART

·       Discounting that does not align with your company's ethics: RQ (0.8) = PR (7) ÷ PL (9) = DUMB

·       Standing your ground when asked for a discount: RQ (3.5) = PR (7) ÷ PL (2) = SMART

·       Calling on a new client without preparation: RQ (1) = PR (7) ÷ PL (7) = DUMB

·       Burn the bridge when a client does not renew: RQ (0) = PR (0) ÷ PL (7) = DUMB

Would you interpret these scenarios the same way?

The Sales Academy again: "Basically, motivation is an important factor that contributes to taking more risks. However, with daily or monthly quotas bearing down, it can be difficult for managers to think differently and encourage their sales staff to take an innovative approach with customers. Hence, they fail to develop the qualities needed to take intelligent risks."

Find out how interim or fractional sales leaders can help to develop those qualities in your sales team.

 

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Sales Academy – How to take calculated risks in sales and achieve success

Tyler Tervooren – Finally, A Simple Way to Tell Smart Risks From Dumb Ones

LeadershipNow – 5 Things Smart Risk Takers Do Well

Photo by Anne Gosewehr