There is one thing every successful entrepreneur has done that every CEO and anyone who wants to run a successful company needs to do too. You must take unreasonable risks to pursue seemingly unrealistic rewards. Does that seem crazy to you? It does to a lot of people. But what it if it\u2019s not crazy? And more importantly, what if it\u2019s actually necessary?<\/p>\n
In 2004 I was an invited guest at a TEC CEOs meeting in The Washington Square Hotel in New York City. TEC is now called Vistage \u2013 and I had been asked to consider becoming a Group Chairman \u2013 and had the privilege of spending an intense day with about a dozen leaders of successful, well established companies. They get together to either get themselves our of their own private patch of quicksand, get a reality check on their thinking about a critical decision they have to make by getting their own answers questioned \u2013 and to simply see their world through the eyes of others who get up every morning and face the same challenges that they do. In the decade since becoming a Chair, I\u2019ve learned it\u2019s not that it\u2019s particularly lonely at the top \u2013 it\u2019s that as a leader your thinking tends to be isolated.<\/p>\n
Meetings like this provide a sounding board that allows you to not only hear yourself say out loud what you have been up all night thinking about \u2013 but also see the reactions of others who at one time or another, most likely thought about and perhaps worried about the same things. The members of this group will candidly share what came of their own sleepless hours. People expose their fears \u2013 and discover that they aren\u2019t alone. They also share their resources, best thinking, lifetimes of experience and highest levels of concern and caring \u2013 because they feel safe doing so \u2013 and trust that everyone else in that room has demonstrated that they are willing to do the same. It\u2019s a code or honor, protected by a promise of privacy and confidence and steeped in a deep commitment to trust, caring, challenge and growth: the stated Values that guide Vistage as an organization and the affiliated peer groups.<\/p>\n
I was a newcomer \u2013 a stranger to those in the room. The Group Chairman, a colleague now, Jeannette Hobson, who is one of the best Vistage Chairs I know to this day not only made\u00a0me<\/em>\u00a0feel welcome \u2013 she allowed her members of that group to feel safe with my presence.<\/p>\n Her gravitas was not her skill and authority \u2013 it was how implicitly the members of that group trusted her. They recognized and respected her competence \u2013 her ability to ensure that the group would serve each and every individual there \u2013 and accomplish it\u2019s purpose \u2013 the reason that all these people were giving up a full day of their crammed calendars each month: to gain something clearly more valuable than the time invested. The ROI had to be significant for these CEOs to be so committed to this. It was the first time I had witnessed this.<\/p>\n \u201cHow many of you would consider yourselves to be entrepreneurs?\u201d<\/p><\/blockquote>\n So thinking about ROI \u2013 I asked the group a question. \u201cHow many of you would consider yourselves to be entrepreneurs?\u201d I had spent the previous ten years either leading or helping launch start-ups. I had also struggled as CEO to lead a very well established but dying company before that that had forced me to become an accidental entrepreneur. I would dream of how to modernize and reinvent what had once been a respected industry leader and then was facing extinction through obsolescence. I had barely been equipped to be the chief executive, but even less competent as an entrepreneur. So I had set out to learn how to be one \u2013 and over those ten years learned more than I ever imagined I needed to.<\/p>\n One CEO responded quickly and predictably, making clear that he didn\u2019t consider himself an entrepreneur \u2013 he ran a successful, fully established company \u2013 and that none of the members of this group were young start-ups. There was a strong sense of agreement \u2013 and I recall one CEO thoughtfully explaining that he was not an entrepreneur per-se, but that he considered himself fairly entrepreneurial in his approach. He liked to approach opportunities with a fresh perspective \u2013 the way the founder of a start-up might think \u2013 and that was one of the benefits he gained from his peers in this group \u2013 who would challenge his thinking.<\/p>\n Most people think of entrepreneurs the way the CEOs in this group did. They either constrain their definition of an entrepreneur to someone leading a start-up, or expand that slightly to being a mindset of inventiveness, innovation and taking risks.<\/p>\n The reason for my question to them \u2013 and why I have asked this question to hundreds of CEOs around the world \u2013 is that I have a different definition of entrepreneur that has to do with a how I believe every entrepreneur views their venture and every CEO and business leader should too.<\/p>\n The one common denominator to every single business that operates in a free-enterprise system \u2013 is that they all succeed or fail in how they leverage the value of their assets against the risks of the marketplace to generate a yield. It is the basic principle of investing. Without risk there is no return. The safer the investment \u2013 the lower the yield. And the greatest potential for return is always attached to the investments that represent the highest degrees of risk.<\/p>\n Your Three Buckets of Capital<\/strong><\/p>\n I divide the capital all businesses place at risk into three categories or buckets in order to understand how as CEOs we must manage risk. As you can see, they are entirely interdependent and must be managed in tandem.<\/p>\n The first are\u00a0the\u00a0real assets that appear on a balance sheet<\/span>. They are tangibles that include cash and anything that can be converted to cash.<\/p>\n The balance are the intangible assets that may or may not appear on your balance sheet.\u00a0Those are\u00a0divided into two separate buckets:\u00a0human capital<\/strong>\u00a0andreputation capital<\/strong>. (People are not an asset because we don\u2019t own them \u2013 but their work product and any intellectual property produced are truly assets.)<\/p>\n Real Capital – and all tangible assets\u00a0are\u00a0always\u00a0at risk. We typically insure against those losses we can. Cash is also always at risk,even when it it seemingly safe. When\u00a0it\u2019s idle or unemployed \u2013 it can lose value due to ordinary economic factors such as inflation or currency fluctuation. And when we weigh in lost opportunity as a cost, it\u2019s obvious that currency \u2013 and any tangible asset is subject to some risk.<\/p>\n Human capital<\/span><\/strong>\u00a0is constantly fluid. People come and go. We die unexpectedly \u2013 or slowly diminish in our capacities. Talent is poachable and perishable. And people are by nature unpredictable. We invest our cash in attempts to please people by either compensating them or growing their capabilities and value. We insure against loosing them or attempt to handcuff them with incentives. In the final analysis, however, people are free to do as they choose. They may bring enormous talents \u2013 and with that even greater threats through disruptive \u2013 and even criminal behavior. Hiring people always involves the equivalent of rolling dice \u2013 regardless of how diligent the hiring process.<\/p>\n Reputation capital<\/span><\/strong>\u00a0amounts to why people transact with us \u2013 externally as well as internally. Our reputation attracts or repels customers or clients. Reputation determines what talent comes our way \u2013 or leaves, which suppliers will work with us or not and even the cost of money. Reputation dictates how much goods will cost us in the marketplace and how much credit will be made available to access cash or how much confidence investors demonstrate.<\/p>\n The interdependence of the impact of risk to these buckets of capital can be staggering.<\/em><\/p><\/blockquote>\n When we run out of free cash flow \u2013 our human capital leaks out of the bottom of the bucket \u2013 or we begin to bail out the bucket to preserve the cash we do have. When talent goes out the door \u2013 they often take good reputation with them. When those that remain are less competent \u2013 the remaining reputation is put at further risks. And when reputation falters, so too do the transactions and the cash becomes challenged or depleted and we see a death-spiral forming.<\/p>\n To my thinking, the single responsibility that a CEO has that cannot be delegated \u2013 is the management of the risk applied to the organization\u2019s assets. It\u2019s a matter of balancing the risk profile against the expectation of return \u2013 and carefully managing that risk in order to preserve the capital required for generating future and ideally sustainable returns. When the assets shrink \u2013 so do the returns. And the only way to increase the yield is by either increasing the capital in play \u2013 or the level of risk. When additional capital is unavailable, employing greater risk is the only choice \u2013 and the natural result is that there is a disproportionate likelihood of further loss \u2013 as is the basic laws of investing.<\/p>\n This is where entrepreneurs live \u2013 whether they realize it or not.<\/p>\n My definition of being an entrepreneur \u2013 is taking unreasonable risks in pursuit of seemingly unrealistic returns<\/em>.<\/p><\/blockquote>\n A start-up, by nature, places everything at risk whenever moneys are spent in advance of any revenue to replenish it. There are no guarantees that there will ever be sufficient cash flows to make any start-up sustainable \u2013 much less profitable. But entrepreneurs know that they have to take that risk. If the returns were guaranteed or there was minimal risk \u2013 there would be no opportunity to take. And most new businesses fail. It\u2019s the laws of risk and investment.<\/p>\n CEOs of well-established, successful organizations need to employ the same approach if they are to lead their companies to sustainable profitability. It\u2019s when they fail to either take or effectively manage unreasonable risks against the prospect of unrealistic gains that companies lose their competitive edge and even eventually slide towards obsolescence. I know this from first-hand experience. And have witnessed this over and over again.<\/p>\n The difference between these companies and a start-up is in the ability to have a balanced portfolio of risk. Some currently safe or safer bets hedge the more risky investments. R&D and innovation can be fueled by carefully attending to established lines of business and maintaining a strong reputation by employing competent leadership, competent talent and efficacious systems that support high-performance and a sustainable competitive advantage. It is when both that sustainable presence and the high-risk plays pay off that companies experience strong growth.<\/p>\n It\u2019s why those dozen or so CEOs gathered each month \u2013 helping each other to keep the unreasonable risks they choose to undertake at check without suffocating the growth they each seek to pursue in their own ways. Knowing how others also experienced with taking similar risks \u2013 view the risks you take and how they might be managed in the context of your pursuit of seemingly unreasonable rewards helps us better explore and interrogate the realities around the decisions we make. By asking better questions we become more prepared and more competent at whatever we do. For those whom it becomes necessary to make something possible, whether to turn dreams into realities \u2013 or solve problems that others see as unsolvable \u2013 it isn\u2019t answers that they need \u2013 it\u2019s always better questions. It\u2019s what Leon Shapiro and Leo Botari call\u00a0The Power of Peers<\/em>\u00a0\u2013 in their informative and insightful recently published book with that same title.<\/p>\n How we think about what we aim to achieve \u2013 and why that\u2019s important is, of course, critical. But how we actually do it \u2013 how we accomplish our aims is about how we become someone who is fully prepared and capable of accomplishing what needs to be done. If there\u2019s a good reason to drive consistent double-digit growth \u2013 or simply to increase your company\u2019s growth rate – than you will need to do more than simply learn to think like an entrepreneur \u2013 you need to be the kind of leader who can build a fully-competent organization \u2013 one that can perform at the top of its game and continuously get better in order to sustain. And among the many competencies you must have \u2013 one of them is the ability to play the role of entrepreneur.<\/p>\n Do you consider yourself an entrepreneur? If not, what would it take for you to be one?<\/p>\n ###<\/p>\n Phil Liebman is the Founder and CEO of The BullFrog Group and Chief Leadership Catalyst at ALPS Leadership. He works with CEOs and their organizations to help them create fully competent companies by enabling those in leadership roles to become the kinds of leaders capable of building and growing sustainable high performance organizations. He has also been a Group Chairman with Vistage where he serves as a mentor to CEOs leads Peer Advisory Boards for CEOs and senior executives. Phil is also a Fellow at The Thayer Institute for<\/p>\n","protected":false},"excerpt":{"rendered":" There is one thing every successful entrepreneur has done that every CEO and anyone who wants to run a successful company needs to do too. You must take unreasonable risks to pursue seemingly unrealistic rewards. Does that seem crazy to you? It does to a lot of people. But what it if it\u2019s not crazy? 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