Four Risk Flavors

A framework for understanding different types of risk that aren't always obvious, and how they can impact success in business and life.

Four Types of Risk

1. Mediocrity Risk

• The risk of being "just okay" rather than great
• More dangerous than outright failure
• Wastes your most valuable asset: time
• Not bad enough to obviously fail, not good enough to be amazing
• Examples: settling for an okay job, relationship, or business performance

2. Safety Risk

• The risk of playing it too safe
• Not taking enough risk can put your dreams at risk
• Ask yourself: "Will my current safe path lead to my ultimate goals?"
• Being in your comfort zone might be risking your future success

3. Eyes-Wide-Shut Risk

• Assuming something is safe when it's actually risky
• Example: 2008 housing crisis - people thought mortgages were safe
• Different from obvious risks that people naturally avoid
• Most dangerous because you don't see it coming
• Can lead to over-leveraging or over-commitment

4. Business Risk Categories

• Market Risk
  • Will anyone want this product/service?
  • Example: Building a new social app
  • Success multiplied by zero if no market exists
• Execution Risk
  • Can you operate and improve the business?
  • Example: Buying existing cash-flowing businesses
  • Focus on operational improvements
• Technical Risk
  • Can you actually build/deliver the promised product?
  • Example: Building a pizza-making robot
  • Less market risk, more engineering challenge

Key Principles

• Obvious risks are often less dangerous because people prepare for them
• The goal isn't to avoid risk but to understand and work around it
• Different types of ventures face different primary risks
• Important to identify which type of risk you're actually taking
• Being honest with yourself about what risks you're facing