How Much Risk Can You Afford to Take? Smart Risk-Taking in Product Development and Manufacturing

Pivot International  |   May 17, 2017

Without risk-taking, there is no innovation. No progress. And certainly, no new products.

For product developers, risk is an inherent part of the process – especially when you have a particularly bold new idea.

Elon Musk, the world-famous innovator behind the Tesla automotive company, is no stranger to bold ideas. Tesla’s electric vehicles are at the cutting edge of available technology, and the company is now working on releasing the Model 3 car, an electric sedan, by September of 2017.

In order to do so, Tesla is doing something that most – if not all – automakers would consider highly risky, as Reuters reports. In fact, it’s something that Pivot, the product development and manufacturing company that I direct, would never, ever recommend to a client.

In the automotive industry, new models are usually first constructed with less expensive prototype machinery, allowing the automaker to make sure that the look and fit of each piece is correct before committing to the more expensive, permanent machinery.

Tesla, however, is skipping the prototype tooling and machinery step and going straight to ordering the permanent machinery. This will save the company time, certainly – but if any of the measurements or fit of a piece is off, Tesla will be out lots of money, as well as lots of time.

Tesla’s Musk has decided that this risk makes sense, and for a company built around risk-taking and bold, ambitious innovation, he may be right.

But how about when it comes to your own product? I hope you’d never skip the prototype phase – that risk is just too great, with too much potential to tank your entire development process. However, there are other risks inherent in the process that you’ll inevitably find yourself confronting.

So how do you decide how much risk you can afford to take?

Here are a few tips to help.

Create a pros and cons list – but do so quickly.

Pros and cons list are a tried-and-true decision-making tool. But when it comes to deciding whether or not to take a risk, it’s a good idea to list the pros and cons quickly, without trying to think through every possible eventuality.

This is especially true if you’re normally a risk-averse person. Exhaustively thinking through a potential risk is far more likely to convince you not to take it, even if there’s a good chance that it could help your product or product-based business.

Coming up with the pros and cons off the top of your head, however, puts you more in touch with your gut or intuition. And that’s a good thing.

Decide how much (time, money, resources, etc.) you’re willing and able to lose.

Taking smart risks means anticipating mistakes or losses – and what’s more, being willing to accept them and move on.

Just like smart gamblers decide how much money they’re willing to lose at a table before calling it quits, smart risk-takers know what losses their product or product-based business can handle while still remaining viable.

In Tesla’s case, the company has – or should have, at least – the financial cushion available to manage any losses if the permanent machinery ends up not being exactly right. Presumably, the company wouldn’t take this risk if having something go wrong would mean losing everything.

While most risks are somewhat less major than Tesla’s, you’ve still got to be prepared to have your risk not pay off. Once you decide to do something, plan out how much you’re willing to lose on it. Then, when you approach that number, be it dollars or hours or days, be decisive enough to either pull the plug, or revise your number.

Begin by taking small risks and work up to the big ones.

While smart risk-taking relies on knowing when to be bold and simply make the leap, it’s not a bad idea to test the waters by taking a few smaller risks first.

Doing so will allow you to see how your product or company benefits from risk. You’ll gain a better idea of whether your team is able to handle risk-taking. You’ll also be able to see how your target audience responds to calculated risks that you take with your product. Perhaps a small improvement to the product’s design falls flat, while a small cost reduction results in a significant number more sales.

Risk-taking is part art and part science, but it’s absolutely necessary to business. Deciding whether a risk is right for your product takes a bit of practice, but if you can learn how to navigate smart risk-taking, your product could succeed far beyond your expectations