Monday, March 15, 2010

Attn: Media Entrepreneurs, Don’t Take Risks!

The best media entrepreneurs don’t take risks. They take what other people think are risks. Bernie Goldhirsh, the founder of Inc. Magazine and a quintessential entrepreneur, was one of the most risk-adverse people I’ve ever had the privilege of working for.

Bernie, who died too young, in 2003, was an avid sailor, who got his start in publishing with SAIL Magazine. His love of sailing brings to mind a simple illustration of risk. In the old sailing days, an investor financed a ship to go to another port with something that would sell at a good price there and to return with something that would sell well in the home port. If your “ship came in” you had it made. If it sank, you lost your investment. If you or all your assets were on that boat, you were sunk along with your ship. Bernie had a special talent for making sure his media ships came in.

Risk is simply uncertainty of outcome. Taking a risk can win high returns when the outcomes are favorable and incur steep losses when the outcomes are unfavorable. High returns are the “risk premium” that covers the possibility of losses. But the perception of risk can depend on who’s looking at it, and with what information.

Like most good entrepreneurs, Bernie made some costly mistakes but none that sunk him. He was an independent thinker with an intuitive sense for opportunity, and an ability to rigorously test his intuitions. He was unconventional in his thought process. He looked at the media business without preconceived notions. Instead of accepting what others told him, he based his judgments on his own careful assessments of reality. He was a calculator, a bottom-line-up-front guy who wanted to see the pro-forma financials for any business plan before he looked at other details. Nobody ever asked me tougher, more insightful questions about the numbers.

If good entrepreneurs are more tolerant of risk than other people, it’s because they’re more realistic about risk. They dig into budgets and projections and detailed plans to test the likelihood of favorable outcomes. They understand probabilities and recognize that business-as-usual is often less certain than it appears. They make mid-course corrections quickly and frequently as conditions change. Bernie once insisted on the complete revamping of a conference marketing effort when he realized the plans were wrong for a souring economy.

New events are perceived as risky, especially in this uncertain media environment, but you can reduce that risk systematically with innovation and with creative, disciplined thinking. Imagine developing events and other media properties that other people think are too risky, then put yourself in the position to know better. A fat “risk premium” is awaiting your success!

What is your take on risk in the current environment? Please comment below.

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Blogger Roger Wilson said...

I got thinking about risk when I saw a hole in the rotten spring ice and a thrashed up channel of broken ice leading to shore. I like to skate ski on soft spring ice but I have rules to reduce the risk. Rule #1 no evidence of a previous risk taker falling through.

March 16, 2010 at 4:08 PM  

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