Principles for taking meaningful risks

In light of the Loran Scholars Foundation’s 30-year celebration, they’ve asked their community to spend some time reflecting on the value of taking meaningful risks and what constitutes #risksforgood. This article is a result of this reflection, and of what the Loran scholarship has meant for my own risk appetite and decision-making.

Think back to a time when you took a major risk. Maybe you decided to switch jobs and weren’t sure if you’d cut it in the new company; maybe you were deciding between studying at different universities; maybe you were debating whether to have kids.

Every major decision we make in our lives involves tradeoffs and uncertainty in outcomes. People agonize over these decisions, debating the choices and replaying them, but often – due to the fear and uncertainty associated with these decisions – they do not approach the decisions analytically or with a framework. The sad truth is that we often rush into decisions without reviewing them or thinking about their longer-term implications.

Over the last several years, I’ve made a few decisions that seemed foolish and risky, but have been the best decisions of my life. Whether it’s quitting my job to start Canopy Labs, or selling the company… Or on a more personal level, deciding to spend 12 months training for an 80km ultramarathon. I’d like to share a few principles I use to make decisions and to calm my nerves.

Before diving in, it’s worth asking what we mean when we talk about taking risks. At some point in our lives (and oftentimes, on a semi-regular basis), each one of us is faced with a choice that comes with a set of tradeoffs. You might have multiple job offers, or maybe you have to decide between which subject to study in school, or whether to quit your job and start a company.

“Taking a risk” really means making a decision to go down a path filled with uncertain outcomes – ones where failure means you are worse off tomorrow than you are today, but success means the opposite. Implicitly, it means there is a grand vision – the choice, should it actually be fulfilled, comes with a story that excites us and leads to an outcome that we want to achieve.

In other words, “taking a risk” is about making a decision with significant uncertainty, and tradeoffs that lead to a large range of outcomes; bad ones, and good ones. I don’t write this to be pedantic, but rather because it’s worth knowing whether you’re actually in a position where you’re taking a risk. If you are, then it’s worth following a set of guidelines or principles to make sure it’s worth taking the risk.

Over the years, I’ve made a list of principles I follow when making a major decision. I find myself returning to the principles below whenever I’m taking a big risk, to ensure I am doing so in a meaningful way – and that the risk is worth taking. To me, a risk is worth taking only when I’ve considered the points below and still feel confident or excited about the vision.

Have a grand vision; a story that excites you. This one might seem obvious, but it’s incredible how often people take risks to fulfill a story or objective that doesn’t actually excite them. We all have friends who were pressured into a profession by their parents, for example, or others who stick with a project or career path that provides incremental benefits every year (e.g., a raise, or a bonus, or status with their peers), but doesn’t actually drive them. Whatever risk you’re taking needs to come with a story that excites you.

What’s your second-level hypothesis? Or in other words, what do you believe that others do not?

The idea here is to get “meta” in your thinking. Meaningful risks are big, come with tradeoffs, and a lot is at stake. First-level thinking is the sort of analysis that most people do: you are given a problem, you look at the facts, and you explore how to solve it. Second-level thinking looks at the situation around the problem and those trying to solve it – to analysis both parts at once. It is difficult because it requires you to understand and work on solving the problem while also having the self-awareness and ability to take a step back and analyze yourself and everyone else. Ultimately, you want to have “second level insights” – ideas, strategies, plans that have been overlooked by everyone else. You only get 5-to-1 odds if you actually have a unique and special insight.

People often ask me how to develop such hypotheses, and my first recommendation focuses on breadth of experience. The easiest way to get creative, develop new ways of thinking, or be “meta” is by gathering a range of experiences and applying these experiences to new domains. One thing I’m grateful for throughout my undergraduate career were my summer experiences. As a Loran Scholar, I was required to spend my three undergraduate summers focusing on different experiences: one summer with a non-profit organization, one in a corporate environment, and one focusing on public policy. This breadth of experience exposed me to a huge range of people, subjects, and ideas – and also led to my interest in applying data science and math to social and business problems.

Is there a 5-to-1 payoff for success? Not all risks and outcomes can be quantified, but the point that I make with this is that the “prize” of success should bring a magnitude of a change to your life, community, or organization; otherwise, it’s likely not worth taking. On the flip side, an ideal risk is one that also has limited costs of failure.

How you judge the payoffs for success is a deeply personal question. Limiting the downsides does not mean the downsides are inconsequential. Rather, you should know what the worst-case scenarios are when taking your risks, and the upsides of the risk should be better than these scenarios.

Make sure the choices align with your values. Costs like the ones above come in different forms – there are actual monetary ones, but I also want to call out a specific price that is never worth paying: not staying true to your values and beliefs. The biggest regrets I see are when people don’t live up to their own values.

Not everyone has their values mapped out, and that’s fine. I have a second approach I sometimes use, particularly if the decision is a bit more nebulous than I’d like. Ask yourself how your 70-year-old self would feel looking back on this decision. Alternatively, ask yourself how your 12-year-old self would feel if you told them which decision you’d be making. I find that my harshest critics are often these two folks and trying to live in a way that pleases them enables me to stay true to myself, and to remain happy.

Do you have a unique edge that makes you special? Insights require execution. Even if you have a great idea or view to solve a problem, the final question is – why you? Maybe you’re the only one that sees the insight above, or maybe executing on the insight requires a special skillset.

When I was starting Canopy Labs, I distinctly remember one of my Loran mentors (he’s both a scholar about 10 years my senior, and now also a close friend) asking me this question. “You’re leaving a well-known consulting firm to start a company no one has heard of. Why would your potential customers take an hour out of their day to meet with an unknown startup?”

It took us about two years to figure out our “leverage”. Oddly enough, I couldn’t forget this question as I kept running into my mentor at the airport – we both travelled so much it just happened that Toronto’s Pearson Airport was a point we’d run into each other, and he would constantly ask me this question. I now have a healthy fear of airports and mentors who travel too much.

In all seriousness, however, I now seek an answer to this question before embarking on a big project or seek startups I invest in to answer this question.

Have an exit strategy. This ties back to the “grand vision” principle but is more difficult to follow because it means knowing when you’ve actually achieved your success or uncertain outcome. It also means that at this point, you might stop working on the project or move on to something new.

There is a flip side to this, too: know when to quit if things are not going your way. It’s extremely difficult to call it quits after taking a big risk or starting an exciting project with a grand vision… What is worse, however, is working on a project where the grand vision becomes unattainable or making sacrifices to stick to something you might learn isn’t feasible. Remember that every day you work on something, you get new data, and new data might mean re-evaluating your choices. Deciding in advance when you might want to take a step back is important, as doing so in the moment is nearly impossible.

Keeping these principles in mind will help with decision-making and risk-taking. You’ll be making decisions that lead to a grand vision, are aligned with your values, have concrete payoffs, are informed by your own thinking and strengths, and have a clear plan for success. Good luck!