Risk appetite

One of the themes in the If I Had My Time Again series was about the importance of taking risks in business. Do you have to be a risk taker to start a real estate agency?

Topic – 5 big mistakes made in a recession

Mentor – Jacob Aldridge

  • Taking risks does not mean acting risky
  • What is your risk rating?
  • What happens when the market turns?

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Kevin:   This week, we’re looking at the five mistakes of recession, and first up, we want to admit that there is not a recession. We’re not in a recession. We’re not even in a downturn in all markets, but it may happen, and as we hinted at yesterday with our guest mentor, Jacob Aldridge, the best time to prepare for it is before it happens. Jacob Aldridge, of course, is from RealReach, and you can get all the details about that. This is just a sample this week of some of the great content in behind that platform, RealReach. Good day, Jacob. How are you doing?

Jacob:   I’m very well, Kevin. How are you?

Kevin:   Good, mate. I know that this is a topic that you’ve addressed on many occasions. We look at it inside RealReach as well. We’re giving you a bit of a taste of it this week. Let’s talk about risk appetite, and one of the themes in the series prior to getting into RealReach was if I had my time again. The importance of taking risk in a business, it came up in almost every conversation I had with leaders, Jacob.

Jacob:   It is, and the reality is you have to take risks to start and grow a business, but taking risks doesn’t mean you have to be risky. It doesn’t mean taking unnecessary chances. It just means that you’ve got to sometimes make a decision on a gut feel or do something that you’re not sure will succeed, speculate to accumulate if you will. So if you think about a risk profile or a risk appetite as being a score from one to 10, where 10 is really risky, I’ve worked with thousands of businesses in my time as a business coach, and I’ve never seen a successful business owner with a risk profile less than six.

Kevin:   Mm-hmm (affirmative), so why is this a mistake in a downturn, Jacob? Is it that people take too many risks?

Jacob:   It’s actually quite the opposite. When the market turns, when you go into a downturn, a lot of principals get scared, and they respond emotionally to that change, and they actually become overly cautious, so they stop investing, they stop taking a chance with their money and putting it into things like marketing or recruitment or growth, which means they actually miss a lot of opportunities, and that’s the mistake that they’re making.

Kevin:   Is it the opposite case during a boom?

Jacob:   It is, yeah. In a boom, and as you said, there are some markets that are going through or will soon be going through the real upswing, and again they make the opposite mistake because of acting out of their feelings. In good times, we feel great, we think we’re 10 foot tall and bulletproof, and so our risk appetite goes up. Warren Buffett has a great saying that when people are greedy, you need to be fearful, and when people are fearful, you need to be greedy, and that means taking the appropriate risk profile for your business regardless of the market conditions.

Kevin:   Mm-hmm (affirmative). One of the aspects we’ll talk about tomorrow, and we’re talking here about preparing in advance, is that if you are going a million miles in one direction, the amount of energy that it takes to slow it down, but if you’ve got a plan, it makes it easy. We’ll discuss that tomorrow when Jacob comes back with us. Jacob Aldridge, of course, is the editor, the author behind RealReach. We’ll talk to you in the morning, mate.

Jacob:   Thanks, Kevin.

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