When a business is under pressure it can be hard to see the wood from the trees. Taking a step back and viewing the situation objectively is doubly difficult if you have your own emotional and financial interests at stake. But objectivity is just what we need if we're to avoid quick fixes, false dawns and people who don't have our best interests at heart. So perhaps we should learn a few lessons from people for whom managing risk is a way of life.
Experienced poker players will tell you that long-term success has little to do with luck. Instead, it's all about maximising your gains and minimising your losses - and that requires a cool head. Players who lose are those who lock in their gains too early and panic when things are not going so well: they take riskier bets and the experienced players just wait and pounce. Herbert Yardley, in his classic "The Education of a Poker Player" (1957), calls these people 'suckers'. Sometimes they get lucky but most of the time they don't, and that's how professionals like Yardley make their money.
To some extent this is true in business. We don't see any reason to change when things are going well (if it ain't broke, don't fix it) and it's only when things are going badly that we are forced to take risks. The old adage that crisis and opportunity are two sides of the same coin holds true and, like the poker player we might get lucky. But we ought to be aware that crises attract opportunists whose agenda is not the same as ours. Opportunists who want to take advantage of times of uncertainty, when our aversion to risk is lowered.
"Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable" (Milton Friedman, Capitalism and Freedom, 1962).
This is, of course, far from the truth. Real, earth-shattering, paradigm-shifting changes like the motor car, the internet, the smart phone and others were in no way born of crisis. Many of the best opportunities are realised when we are not under pressure.
Successful businesses are those that have a more sophisticated attitude to risk. Like the experienced poker player they know that the time to take risks is when we are winning, when we can actually afford to take a hit now and then.
All of which is of little comfort to those who are feeling the pinch and are faced with the choice of cashing in early, minimising their gains, or risking maximising their losses by 'betting the farm'. It's like telling someone who's lost 'well you shouldn't have started from here'.
But since we are where we are, what is to be done?
First of all, in the words of The Hitchhikers Guide, don't panic! Most of us don't need to clutch at straws. If a decision needs to be made quickly there is a temptation to make it immediately just to be seen to be dynamic but in fact that squanders whatever time was available for considered thinking. There is plenty of evidence that decisions made under pressure are likely to be sub-optimal or just plain wrong.
So we should fall back on the basics; SWOT analyses, innovation audits and so on. Ask the basic questions 'what can we do better? and 'what can we do differently?' Look for the opportunities, calculate the risks and make measured decisions rather than relying on 'intuition'. As the scientist Carl Sagan used to say, 'I try not to think with my gut'.
