Four-time best-selling author Malcolm Gladwell breaks down what makes a great risk-taker.
According to Gladwell, time and again, great entrepreneurs have separated themselves by their willingness to take tremendous risks early on … to bank everything on a calculated, yet unproven, business venture.
Gladwell goes on to explain that there is usually a watershed moment that catapults the would-be entrepreneur from respected capitalist to corporate magnate. This is the moment where years of risk and investment give way to tremendous return and growth.
Example: Early on in his career, Time Warner entrepreneur Ted Turner was willing to bank his family’s entire war chest on a small UHF channel in Atlanta. His family had built its wealth via a southern billboard business. Most of the advisers Turner turned to told him the move was insane. They insisted he wouldn’t only lose his investment, delving into an industry he knew little about, he’d also ruin the family’s billboard business in the process.
Oddly enough, Turner’s ace in the hole turned out to be the family billboard business. After investing in the TV station, he used every vacant billboard his family’s company had to advertise and promote the station. So rather than losing money on excess resources, he was gaining tremendous publicity for his new business venture – a move that eventually helped the station boost ratings, advertising rates and profits.
This was one of several watershed moments for Turner, based on his willingness to take risks that may have seemed insane to the casual observer, but were actually based on a brilliant business strategy.
Gladwell also shares the story of John Paulson – a Wall Street investor who spent several months and countless resources researching the housing market. Most assumed Paulson was wasting his time, trying to pinpoint when and how the market would go bust rather than simply investing as the bubble continue to grow. Meanwhile, one of Paulson’s researchers identified the high risk of tens of thousands of subprime mortgage loans being doled out by major financial institutions.
Armed with that info – info no one besides Paulson really had the numbers to double down on – Paulson began investing in credit default swaps, allowing him to collect the insurance on home loans investors defaulted on.
Result: As a result of his willingness to take what seemed like an insane risk, based on solid numbers, Paulson turned an investment of millions into tens of billions of dollars.
The key difference between the success stories and those would-be entrepreneurs who eventually went on to make their mark and those fell by the wayside:
- The ability and ambition to do the research, understand the numbers and identify a correlation or anomaly and exploit it, and
- Having the capital reserves to fail every now and again between major successes. Not every new venture is a winner. But if you can pile up a few major successes along the way, then the unfortunate failures wind up paying for themselves.