Rules of the Scrappy Capitalist: Rule 5 – Take smart risks

Until recently, business owners and investors had a deep, wide moat around their castle of success. They made money and then their money made money, and they sat around in mahogany-paneled rooms, smoking cigars. The internet changed everything.

Easier access to markets and an ability to start profit-generating businesses in minutes (instead of months) has created a new breed of business owner and investor. I call them scrappy capitalists. Starting and running a business or investing in equities or real estate is now available to anyone. That doesn’t mean success is guaranteed, but it is available to more people and the scrappy capitalists are the ones who pursue success in business or the markets.

There are six rules that a scrappy capitalist follows to be successful. Here’s the fifth one:

SCRAPPY CAPITALIST RULE #5: TAKE SMART RISKS

Scrappy capitalists know that success doesn’t come automatically. Although more people can start businesses or investing in the capital or real estate markets, it doesn’t guarantee that they will be successful at it.

Scrappy capitalists know that today’s risks are different than the risks that yesterday’s “old school” capitalists understood. And they know that opportunities and risks are often tied together. For example, faster speed to market is a modern opportunity but it’s also a risk. Greater access to capital is a modern opportunity but it’s also a risk. Social media is a modern opportunity but it’s also a risk.

For this reason, scrappy capitalists are not risk averse. They embrace risk thoughtfully and intentionally, perhaps even using risk to their advantage. For example:

  • They are aware of changes in risks and use that awareness to trigger action
  • They mitigate risks in a way that others cannot, building a moat around their success
  • They solve risks that other entrepreneurs/investors cannot solve, monetizing this new ability

Scrappy capitalists don’t avoid risks. They accept that risk is always present and they act anyway when it makes sense to do so.

  1. Identify what the risks are: Scrappy capitalists use technology and tools to research potential risks and find out the experiences of other entrepreneurs/investors who have gone before them.
  2. Evaluate the level of danger and potential loss: Scrappy capitalists thoughtfully and creatively consider how the “cost” of each risk will impact them. Some risks are worth the cost, others are not.
  3. Act anyway (if appropriate): Scrappy capitalists will embrace risk as part of being in the game. That’s what makes them scrappy!
  4. Aggressively mitigate risks: Scrappy capitalists build a network of contacts and a library of knowledge and a resource of technology to help them reduce as much risk as possible.
  5. Repeat this process every single day: Scrappy capitalists make risk reduction a key part of their daily activity.

Running a business or investing in the capital or real estate markets is now available to anyone. But success isn’t guaranteed and the challenges skill scare many people away. Scrappy capitalists, on the other hand, embrace the risks and act anyway.

Stay tuned. I’ll reveal the next rule of the scrappy capitalist soon.

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