How Leaders Can Successfully Take More Risks

February 15, 2023

How Leaders Take More Risks

How can leaders successfully take more risks? Guy Raz, host of “How I Build This” and “Wisdom from the Top,” has interviewed over 700 entrepreneurs and top-level executives. This has provided him with a very rich qualitative database. When asked about the most common characteristics of successful entrepreneurs, he emphasized three critical behaviors.

  1. Create a collaborative culture.
  2. Encourage risk-taking.
  3. Allow for failure.

These three behaviors don’t just apply to successful entrepreneurs who have the grit to “make it big.” These can apply to individuals wanting to grow their talents or organizations wanting to engage their workforce.

Leadership Research on Taking Risks

For the last several years, we have been gathering data on leaders and their propensity to avoid or take risks. We examined data on over 6,000 leaders who participated in 360-degree assessments with feedback from managers, peers, direct reports, and others.

Taking risks was one of the 19 competencies assessed in Zenger Folkman’s Extraordinary Leader Development Program. Our data strongly suggests that Guy Raz was correct in identifying risk-taking as a critical competency connected with successful entrepreneurs.

In our research, we discovered that 28% of top-level leaders were rated in the top quartile on risk-taking, but only 23% of supervisors were similarly rated. One of the criteria for promotion to a senior leadership position is a willingness to take risks and challenge the status quo. When we examined leaders’ ratings on the 19 competencies, we found that taking risks was rated the 7th highest. But when raters ranked the 19 competencies in terms of importance to do well to be successful it came in 17th.

That was a surprise, but the reality is that taking risks may seem to others irresponsible or threatening.

Setting stretch goals, another very important competency, was rated 16th. This demonstrates that employees don’t always like being given stretch goals and prefer leaders to be safe rather than take risks. The reality is that we like to stay in places where we feel comfortable and certain. But it is only in places of uncertainty and discomfort that we can truly grow. That requires risk.

Most people would probably agree that never being willing to take a risk would be irresponsible and a formula for failure for most people.

Discover more about taking risks in our upcoming webinar—RISKY NOT RECKLESS: Develop the Behaviors that Support Taking Risks. Register now!

Taking Risks Versus Gambling

Risk-taking and gambling are very different behaviors. Gamblers take chances where they count on fate or miracles to influence the outcome. Risk takers look at all the facts, gather data, examine options, and then make a well-informed decision. Is it possible that the decision might fail? Yes, but often doing nothing is a much worse option. Organizations are continually disrupted by new competitors using innovative strategies. Those who choose to stay the course often fail, but those who assume risks and disrupt the disruptors often win.

Strength Building Behaviors 

In our research at Zenger Folkman, we found that leaders who wanted to take risks but lacked competence in a few critical behaviors were, in fact, gamblers. To be an effective risk taker required competence in at least one of the five behaviors and had a significant influence over the outcomes.

To demonstrate the impact of just one of these strength-building skills, the graph below shows the results from over 6,000 leaders’ 360-degree evaluations comparing top and bottom-quartile skills in taking risks and making decisions.

The outcome we measured in the study was the overall leadership effectiveness rating. Leaders in the bottom quartile on both risk-taking and decision-making had an overall rating at the 18th percentile. Being in the top quartile on risk-taking elevated overall effectiveness to the 54th percentile. Top quartile skills in decision-making increased overall effectiveness a bit more to the 68th percentile. But being highly skilled in both competencies created an even higher score to the 83rd percentile.

We call this a powerful combination.

Taking Risks—Strength Builders

  1. Decision Making. As the graph above demonstrates, being willing to take risks combined with making good decisions has a significant positive impact on a leader’s effectiveness. Great decision-makers gather lots of data, examine options, involve others, conduct experiments, and then make effective decisions. While many decisions will be excellent, some will be failures, and a critical skill in decision-making is acknowledging quickly when a decision is wrong and changing course.
  2. Showing courage. The second strength-building skill is a necessary ingredient in any person who wants to be effective at taking risks. The bottom line? You need courage. You will never have enough facts and data to know with 100% certainty that risk will be successful. Risk can lead to failure, but if you were to eliminate any potential for failure, then it would not be a risk.
  3. Inspiring Others. One way of taking a risk and making it successful is your ability to inspire others to make it successful. This is the implementation part of the decision, and generating energy and excitement is critical for success.
  4. Developing Strategic Perspective. Having an excellent strategy that links the risk you are taking to the overall direction and purpose of the organization is a critical piece of the puzzle. Helping others see how it will enable the organization to create a competitive advantage generates energy and insights into others for implementation.
  5. Fostering Innovation. Many risks represent an innovative approach not previously considered. Often the innovative approach will create additional value and more satisfied customers. Many innovative ideas are created by adapting innovations from other fields or technologies. Being curious about different aspects of your environment can often generate new innovative ideas.

In Conclusion: Build Stability in the Risks You Take

It is easy to see how all five strength builders will help leaders be more successful in taking risks. Our research tells us that standing out on one, two, or three of the strength builders can pole vault your success in taking risks to the 88thpercentile. While everyone enjoys the safety and security of staying the course and not taking risks, we all must realize that life requires some risk, but risk often generates great rewards.

-Joe Folkman, President of Zenger Folkman

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