Risk-Takers | Risk-Taking in Business & Entrepreneurship – Video & Lesson Transcript | Study.com

Risk-taking in business is an important part of both the individual health and success of a company and the economy at large. Taking risks in business usually involves a process known as trial and error. Trial and error is a process in which decision-makers overcome their fear of the unknown and make decisions knowing they may lead to failure. Within the trial and error approach, there is an understanding that there will be failure, and that failure is something to seek out rather than avoid. This is because learning comes with failure, and failing in a specific way can be incredibly valuable to a company. Trial and error are not, however, just random risk-taking. Trial and error is usually a carefully thought out process and involves trying out new ideas and implementations of various endeavors, assessing the overall success of the endeavor, and then making improvements to the design or business plan to not make the same mistakes twice. Then the design or plan is tried again after being edited and the process continues to cycle in this way until the desired effect is produced.

Risk-taking through trial and error follows three basic principles about the type of failure that is desired during the trial and error process. The first principle is known as an early failure. It is beneficial to refute bad ideas early so that the associated loss does not grow. When entrepreneurs and business people hold on to a bad idea for too long, it is known as an escalation of commitment, and as the bad idea is held onto, the loss of investment grows. The second principle is known as a cheap failure. As stated above, risk-taking does not mean blindly and rashly taking risks. It involves careful planning and one way in which business people plan to take risks is by doing cost analysis. When planning failure, it is best done small and cheaply first. The third principle of failure is to fail often. Because the goal of the trial and error process is to eventually come to an idea or plan that is successful, when failure happens it is important to readjust and try again often so success can be reached.