# What is a Calculated Risk?

You may have heard many times that people are talking or bragging about their success story centered by the calculated risk they took. While you may also have wondered among the many risks you are going to take in the rest of your life, how could you know which ones are calculated and which ones are not. So let’s dig deep here since it is very important.

First as I always do, let’s start with the definition — so what’s a Calculated Risk or sometimes Smart Risk.

Calculated risk. A chance taken after careful estimation of the probable outcome, as in Taking their dispute to arbitration was definitely a calculated risk. This term uses calculated in the sense of “planned with forethought,” a usage from the mid-1800s. (Source: dictionary.com)

By reading through the above definition carefully, I captured below “key words” and would like to turn it to the better version from me:
- Careful estimation => Disciplined prediction
- Probable outcome => Probabilities of all potential major outcomes

Okay, let’s stop the boring words game, and jump into the historical events to really learn what are the smart risks to take.

First time - 1998 for JUST 1 million dollars
Second time - 2002 for 5 billion dollars
The rest is the history — Google is now a trillion dollar company, while Yahoo is gone for most users. (I am actually still a Yahoo user, specifically Yahoo Finance:)

So for twice, did NOT Yahoo calculated?! For sure, they did with a big M&A team at least for the 2nd time. Since the first time in 1998, they might totally missed to see the role of search engine to be played in the Internet ecosystem. While in the 2nd time in 2002, Yahoo offered 3 billion as the price tag which clearly showed they already knew the power of Google. However, after their “careful estimation” of Google’s value, they refused to pay 2 billion more and totally missed the opportunity to own a trillion dollar business. While to be honest, even if Yahoo did bought Google back to then, what may have happened is Google will be buried in Yahoo’s bad culture and eventually someone else will create another “Google” to take the position that Google has today in the market.

2. Tesla and Elon Musk
Now Elon is the new Steve Jobs without much doubt with the massive success Tesla, SpaceX achieved so far as the #4 richest man! While was it a well calculated smart risk for Elon to take when he decided to put all his hard earned personal wealth (100+ million dollars from selling Zip2 and Paypal) to save Tesla through the near-to-death hard time? Maybe not, since back to then, Tesla is just weeks from bankrupting, it was a BIG BET, and from any sense of calculation, it can NOT be positioned as a calculated risk, since if he took calculated risk, he should let Tesla to close down or being sold by saving the last chunk of his personal wealth.
So looking back from now, Elon for sure can proudly say he took a huge bet, but I don’t think he could say it was a calculated risk to take:)

3. Zoom and Eric Yuan
Only after 18 months of IPO, Zoom not only became a verb, but also became a 150 Billion(market cap) worth company! What a legend!

While Eric Yuan(Zoom’s founder) quitted his high pay VP job from Cisco to start Zoom, how did he calculate the risk? By watching some interview videos with him, my answer is he did NOT calculate the risk — he just want to do it!

Think about it, even Eric had very deep understanding and background of video conferencing industry since he was a key founding engineer of WebEx before it was acquired by Cisco, the market was *almost* filled by big guys incl. Cisco(WebEx), MicroSoft(Team), Google(Hangout/Meet), Facebook(Messenger for biz). So it was a red-sea market for him to swim, and he either did NOT calculate the risk in a normal way or he really knew the problems that none of those big guys are filling.

Last but not least, taking a calculated risk is just the starting, the key of any significant success is Execution, think about the innovation of car manufacturing, self driving technology, direct-selling model, Tesla car insurance, it all takes great effort to be executed well.

Without consistent and high quality focusing and execution, not single calculated risk-taking can really lead to any success. Right?

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## More from Tommy Kan

A lifelong learner and explorer! Grew up in Asia, now enjoying the dynamism of Silicon Valley in the sunny California.

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A lifelong learner and explorer! Grew up in Asia, now enjoying the dynamism of Silicon Valley in the sunny California.