Why you need to understand risk to succeed

Launching a new business is often all about will and vision. But there is another element that should be present in those early days – one that is often overlooked: managing risk.

“Risk” is a word that is almost always partnered with “avoidance.” It often seems that the entire world is obsessed with avoiding risk. I believe in facing risk head on.

When launching Rakuten Ichiba, we were risk-takers. The idea of an Internet shopping mall was already one with a recognized history of failure in Japan. Common sense told us that there was a high chance we would not succeed. But that was a risk we were willing to take.

Some people would probably call taking a risk in this way, or rather, betting against such risk, a kind of gamble. I cannot deny that business contains within it certain elements of gambling, but I believe firmly that gambling and business are basically different.

It is true that I bet against a risk, but I did so only after completely understanding the magnitude and type of the risk that I faced, reducing it as much as I could and then preparing a plan to deal with the worst-case scenario.

The biggest risk that I faced at that time was the possibility that the Internet would not spread as fast as I had predicted. The speed of proliferation that we saw in 1997 was not sufficient to attract enough customers to Rakuten Ichiba, no matter how appealing we made our site. The initial business model depended on the Internet spreading throughout the world at a rapid pace.

To deal with this risk, the fee for opening up a shop on Rakuten Ichiba was set at a very low price at the time, and store owners were asked to pay for half-a-year’s service up-front. This meant that even if Internet shopping did not grow as fast as expected, we would still be able to maintain a minimum cash flow. It wasn’t easy convincing store owners this was the best approach, but those store owners who believed in Rakuten Ichiba have seen years of success.

We did not just take a risk, we worked to fully understand the magnitude and type of the risk we faced, and then developed a plan to deal with it even if the worst-case scenario occurred. By understanding the risk we were able to face it head on.

Understand precisely the type and magnitude of the risk you face and come up with concrete plans to deal with it. If you can accomplish this, your greatest risks will become your greatest opportunities.

This article is published in collaboration with LinkedIn. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Hiroshi Mikitani is the CEO of Rakuten Inc.

Image: A worker arrives at his office in the Canary Wharf business district. REUTERS/Eddie Keogh.