As someone who’s spent years in the trenches of entrepreneurship and corporate leadership, I’ve had my fair share of encounters with the age-old mantra: “high risk, high reward.” It’s a catchy phrase, isn’t it? It’s been drilled into our collective psyche, leading many of us to believe that risk-taking should be the primary yardstick for measuring success and allocating rewards in business. But here’s the thing – I’ve come to realize that this mindset might be doing us more harm than good.

Risk-taking is overrated. What’s underrated is the power of consistent value creation.

The Risk Obsession: A Dangerous Game

Let’s be real for a moment. Rewarding risk-taking as the be-all and end-all in business is like praising a gambler for betting their life savings on a single hand of poker. It’s not just short-sighted; it’s downright dangerous. I’ve seen it firsthand – this mentality breeds a culture of recklessness that can lead to catastrophic outcomes for individuals, businesses, and even entire economies.

Think about it. Would you applaud an employee who took an unnecessary risk that could have tanked your company? Probably not. So why do we often glorify entrepreneurs or leaders who do essentially the same thing on a larger scale?

Shifting the Focus: The Value Creation Paradigm

Here’s what I propose: instead of fixating on risk, let’s prioritize rewarding people based on the value they bring to their organizations and society. It’s not just a feel-good idea; it’s a practical approach that aligns incentives with positive outcomes and fosters sustainable growth.

Why does this matter? Let me break it down:

1. Innovation is the real driver of progress: In my experience, true value often springs from innovative solutions to real-world problems. When we focus on value creation, we encourage people to think creatively and develop products or services that genuinely improve lives. It’s not about who can take the biggest risk; it’s about who can solve the most pressing problems.
2. Skill and effort deserve recognition: Success in business isn’t just about luck or chance. More often than not, it’s the result of hard work, strategic thinking, and persistent execution. By rewarding value creation, we acknowledge the blood, sweat, and tears that individuals pour into their work.
3. Sustainability is key: Tying rewards to value creation promotes long-term thinking and sustainable business practices. It’s not just about the quick win or the short-term stock price bump. It’s about building something that lasts and benefits not just the individual or company, but the broader economy and society.

The Art of Calculated Risk

Now, don’t get me wrong. I’m not saying we should completely avoid risk. As any seasoned entrepreneur will tell you, calculated risks are often necessary for innovation and growth. The key word here is “calculated.”

Successful business leaders aren’t reckless gamblers; they’re skilled risk managers. They carefully assess potential risks and rewards, develop strategies to mitigate negative outcomes, and make informed decisions. It’s a skill that can be developed and honed over time.

I’m reminded of something Clark Gilbert, a former Harvard Business School professor, once said: “Risks in themselves do not produce rewards, risk reduction does. Those who are better at this skill are better at generating returns.” This resonates with my own experiences. The most successful people I’ve encountered in business aren’t necessarily the biggest risk-takers; they’re the ones who are best at managing and mitigating risks.

I met Clark Gilbert during his time at Harvard Business School. In the early 2000s, Clark visited Knight Ridder Digital, where I was VP of Engineering, to conduct research for a case study on our digital ventures. His work, which resulted in the Harvard Business School case ‘ Mercury Rising: Knight Ridder’s Digital Venture ,’ provided valuable insights into our company’s efforts to navigate the digital transformation of the newspaper industry. I remember being impressed by Clark’s astute observations and analysis.

The Psychology of Risk and Value Creation

Let’s dive a bit deeper into the psychology behind risk and value creation. Michele Wucker, in her insightful book “ You Are What You Risk ,” introduces several concepts that I find particularly relevant:

1. Risk Fingerprint: Wucker suggests that each of us has a unique “risk fingerprint” – a set of influences that shape our attitudes toward risk. This includes our personality, social context, and past experiences. Understanding our own risk fingerprint can lead to more informed decision-making and, ultimately, better value creation.
2. Positive Risk-Taking: While I’m advocating for a focus on value creation, Wucker reminds us that not all risks are bad. Positive risk-taking is essential for growth and innovation. The key is to align these calculated risks with potential value creation, rather than taking risks for their own sake.
3. Risk Empathy: This is a fascinating concept Wucker introduces – the ability to understand and relate to how others experience risks. In my leadership roles, I’ve found this skill invaluable. Leaders who practice risk empathy can better navigate team dynamics, understand stakeholder concerns, and ultimately make decisions that create more value for all involved.
4. Risk Savvy: Being “risk savvy,” as Wucker defines it, means having the ability to recognize and assess dangers and opportunities accurately while balancing emotion and reason. This aligns perfectly with our emphasis on rewarding value creation. Risk-savvy individuals are more likely to make decisions that lead to genuine value, rather than just taking risks for the thrill or potential reward.

Michele Wucker and I are both members of the World Economic Forum’s Young Global Leaders alumni community, and I’m honored to call her a good friend. Michele graciously included me in her book, referring to me as ‘a brilliant chief technology officer, who has worked for big media corporations and start-ups’ in chapter 9, where she shares part of my life story along with those of others she interviewed.

The Value Creation Imperative

So, what does all this mean for us as business leaders, entrepreneurs, and innovators? It means we need to shift our focus from merely rewarding risk-taking to actively encouraging and rewarding value creation.

Here’s what this might look like in practice:

1. Redefine success metrics: Instead of glorifying those who take the biggest risks, let’s celebrate the innovators who solve real-world problems, the leaders who create sustainable long-term growth, and the individuals who contribute positively to their communities.
2. Foster a culture of innovation: Create an environment where calculated risk-taking in service of value creation is encouraged. This means providing resources for experimentation, tolerating failures that lead to learning, and rewarding innovative thinking.
3. Invest in skill development: If we want people to create value, we need to give them the tools to do so. This could mean providing training in problem-solving techniques, fostering creativity, or teaching risk management skills.
4. Practice and encourage risk empathy: As leaders, we should strive to understand the risk perceptions of our team members, stakeholders, and customers. This empathy can lead to better decision-making and more effective value creation.
5. Prioritize long-term value over short-term gains: This might mean passing up on opportunities that promise quick returns but don’t align with our long-term value creation goals.

The Power of Value Creation

Let me share a personal anecdote that illustrates the power of focusing on value creation. In one of my previous roles, we were faced with a choice between two projects. One was a high-risk venture that promised potentially huge returns but had a significant chance of failure. The other was a more modest proposal focused on solving a persistent problem for our customers.

The team was initially drawn to the high-risk option, seduced by the potential for a big win. But when we reframed our discussion around value creation, the decision became clear. The second project, while less flashy, had the potential to create significant, lasting value for our customers and, by extension, our company.

We chose to pursue the value-creating project, and it turned out to be one of the best decisions we made. Not only did it lead to increased customer satisfaction and loyalty, but it also opened up new revenue streams we hadn’t anticipated. The project’s success wasn’t due to luck or excessive risk-taking, but to our focus on creating real, tangible value.

Conclusion: A Call for Change

It’s time for us to move beyond the simplistic “high risk, high reward” mentality. By focusing on value creation rather than mere risk-taking, we can foster a business environment that encourages innovation, rewards genuine skill and effort, and contributes positively to society.

This shift won’t happen overnight. It requires a fundamental change in how we think about success and reward in business. But I believe it’s a change worth making. By understanding risk in the context of value creation, developing our risk empathy, becoming more risk savvy, and recognizing our own risk fingerprints, we can make better decisions that lead to meaningful value creation.

This nuanced approach to risk and reward can lead to more sustainable and impactful business practices, benefiting not just individuals and organizations, but society as a whole. And isn’t that what business should be about? Creating value, solving problems, and making the world a little bit better?

So, I challenge you – the next time you’re faced with a business decision, ask yourself: “Am I taking this risk for the sake of risk, or am I creating real value?” Your answer might just change the game.