I was inspired to put together this diagram to highlight the competing forces of risk and return (also known as reward). As I sat on the couch one evening a thought came to me about what separates successful leaders from everyone else.
Successful leaders aren’t smarter. They certainly aren’t more conservative. They do seem to take a lot of risks and for the most part emerge unscathed. Once in a while you will see a leader crash and burn only to rise from the ashes. Unless it is incapacitating or life threatening… most disasters won’t keep a true leader down.
Lots of people have visions of a future they would like to create or see others create, however most of these visionaries never manifest their vision into reality. You could say its easy to dream and quite another thing to take it all the way to realizing it.
The best leaders not only inspire others to follow but also acquire missing knowledge and apply it through successful execution on the route to mastery. This takes balancing risk and return.
The same is true of investing and entrepreneurship. Ask any successful investor or entrepreneur and they will tell you that maximizing returns comes with high risk and that minimizing risk also limits potential returns. The Sweet Spot (The Zone) is found by seeking a balance between these two competing forces. In order to stay in the Sweet Spot takes constant learning, execution and application of the knowledge gained.
When you stop learning, stop applying and stop executing you drop out of The Zone and become either over conservative or take unwise risks that are akin to gambling.
Most people fixate on one end of the spectrum or the other and often wildly swing between the two.
Consider for a moment, what would happen to your FLOW if you followed this simple 4 step strategy:
- Locate the Sweet Spot by asking “what does OPTIMUM look like?”
- Move into the Sweet Spot
- Make ongoing adjustments to stay in the Sweet Spot
- Assess the downside risks and develop a strategy to mitigate them
- Inventory the potential upside and implement a strategy to capitalize on it
The key is to not fight competing forces… work with them!
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