Risk Taking with Sallie Krawcheck

This class is hosted on LinkedIn Learning and taught by Sallie Krawcheck.


About the Course and Instructor

Sallie started her career in business as a research analyst for Sanford C. Bernstein & Co. She was later promoted to the Director of Research and eventually Chief Executive Officer. Since then, she has served as the CEO for Smith Barney, Citi Wealth Management, and Merrill Lynch Wealth Management.

She is now the Founder and CEO of Ellevest, a platform that is redefining investing for women. 



Introduction to Risk

Risk is an uncomfortable topic for many of us but the pace of change in business today is such that if you're not taking a risk, you're taking a risk. And as individuals, being a great risk taker is a part of the foundation for having a successful and fulfilling career. 

Being a great risk taker is not about being bold or being crazy. Being a great risk taker is all about being thoughtful and analytical with your choices.


EVALUATE AND FRAME THE RISk

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Evaluating Risk

One of the most important steps before taking any risk is evaluating that risk, taking a set of imperfect information and piecing it together. 

What do you know? What are the choices you can make? What is the potential upside? What is the potential downside?

Sallie recommends sitting and thinking through decisions early in the morning. She describes her state in the morning as a little bit "hazy." In this state she is able to get her thoughts down on paper before the rest of the day when all of her defenses would be up. Alternatively, she would think things through late in the evening while drinking a glass of wine, as it would accomplish much of the same effect. She encourages you to sit down and think and write down your thoughts. She emphases not to hold back, and "to really get it all out there."

After you flesh out the potential upside and the potential downside, Sallie recommends that you sit with it for a few days. If possible, talk and debate the risk with friends and family to help you think about the decision in new ways.

Decide to Proceed

Surround yourself with a diverse team: Sallie says she has found that diversity is a key component of a successful team. She mentions having diversity of gender, diversity of background, diversity of age, of perspective, of education, and of industry. In her team she wants "as much diversity as [she] can possibly find."

It feels much more comfortable to surround yourself with people who think just like you. It can often feel like the risk has been lowered because you're more likely to agree on things. Diversity helps ensure that you're looking at a problem or a risk from every angle.


MITIGATE THE RISK

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Think Through Your Worst-Case Scenario

This part of the exercise requires you to make yourself uncomfortable. Sallie wants you to think about failure.

Think about the ways this risk could go badly and write them all down. Often times you'll find that failure often just involves temporary embarrassment. And when you really break down that feeling of embarrassment, you'll find there really isn't that much to lose.

Think Through Your Best-Case Scenario

Take some time and think about the implications if you are successful in taking this risk.

Research shows that for men, success and likability are positively correlated. However, for women, that relationship is inversely correlated. So, for women, there is an additional consideration to make: if being successful changes peoples' perception of you, are you okay with that? Sallie has dealt with this first hand and has to ask herself, "How important is it for me as I go through my day-to-day life to be thought of as 'likable?'"

Another thing to think about is will you lose your crowd, your tribe, your friends? If you take a promotion, for example, will you lose your former coworkers? If so, is that something you're willing to accept?

Another fear that is common in many decisions is the fear of being talked about... the fear of sticking out. If you're taking a promotion and now you're the boss, are you okay with rooms getting quiet when you walk in? Sallie has had to deal with all of these considerations and more. Again, she encourages you to write them all down and consider if the potential upside is worth it. She says often times it is. 

Acknowledge You May Be Holding Yourself Back

Sallie says, generally speaking, women tend to more risk-aware (but not necessarily more risk-averse) than men. That is, women tend to think about risks more than men might. 

Unfortunately, risk can stop a lot of women in their tracks because research has shown that women tend to take failure harder than men. What's more, women also tend to be more comfortable within their "zone-of-comfort." Because of these factors, and because women tend to spend more time thinking about risks, women are also more likely to over-analyze risks and become paralyzed from action.

Sallie continues,

"As a result, sometimes we're not taking the risk that we should in order to invest in a way that will allow us to live our fullest lives, in order to take the promotion that will allow us to extend ourselves professionally, in order to start the business that will enable us to build the companies that we want to build...

And so, I would urge all of us as women to sort of redouble our efforts here, to really think about where there's risk that we can be taking in our careers and our lives and in investing, what that upside and downside is, because oftentimes we're so busy thinking about that downside and analyzing the risk that it can paralyze us from taking action."

RISKS OF ENTREPRENEURSHIP

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In this section, Sallie references a post she wrote on LinkedIn called, "Why You Should NOT Leave Your Job to Become an Entrepreneur."

Right now the move to entrepreneurship is really hot. However, most articles focus on the idea that if you leave your corporate job to be an entrepreneur you're going to be so much happier and so much more fulfilled as a person. You'll start off in a small office but you'll be a billionaire before you know it.

In reality, becoming an entrepreneur is much harder than these articles describe, and it's certainly not the right path for everyone. Sallie wants to get granular around some of the risks of being an entrepreneur.

Risks of Raising Money

First, raising money is hard. Unfortunately, it's even harder for women to raise money. Women only receive 3%-8% of venture capitalist funding. So, if you're thinking about making that transition into starting a business, Sallie encourages you to think hard about what your sources of funding will be.

Funding sources could include friends who are investors, angel investors, or crowdfunding. But of course, there's a final source of funding, which is talked about much less, revenue. Sallie continues, "It's a form of capital. It's a free form of capital. It's a good form of capital. So also think about getting to revenue sooner than you might otherwise."

Risks of Making Sales

Another piece you need to think about as you transition to entrepreneurship are sales, B2B (business-to-business) sales. There are different types of sales, a fast yes, a fast no, a slow yes, and a slow no.

Sallie jokes (or maybe doesn't), "I am now almost putting on my business card that a fast no is okay." She goes on to explain that "a fast no sometimes is better than a slow yes, and a slow no is death." A slow no is "death" because as an entrepreneur you're constantly fighting cash flow. Sallie tells a story of this type of slow-yes:

I've actually seen [this] when I was running Merrill Lynch that we put a start-up out of business. One of my direct reports loved a start-up, and loved the product. It was going through the approvals at Merrill, the approvals at Bank of America, the approvals in technology, and the entrepreneur ran out of cash by the time that he got all the approvals done.

If your business plan involves going after B2B sales, allow for more time than you originally planned. It will take much more time than you think.

Risks of Hiring

Hiring for a startup is different than hiring for other types of organizations. You may know a lot of people, and many of them may be smart and great workers but that doesn't mean they are the right people for your startup.

Startups are often doing something innovative, something that hasn't been done by anyone before. So when Ellevest, Sallie Krawcheck's new company, was looking for a Chief Investment Officer, Sallie thought it would be easy because she knew hundreds of CIO's personally. Unfortunately, they weren't just looking for someone with experience, they were looking for someone who could think differently. 

The people you know, the smart and hard-working peer we discussed earlier, they're good at complex decision-making within the confines of a large institution. Is that what you need?

Another concern is, because of the limited number of employees and the large amount of work that needs to be done, everyone in the company at some point is going to have to take some of the "grunt work." Sallie says even as CEO she's worked on writing, on building earnings models, and on copy editing. Are you willing to do these tasks, are the people you want to hire ready to perform these tasks?

Sallie takes some time to get specific around the costs and risks of hiring. If you have a company with 10 people and you get one person wrong, it's going to take you, for example, three to six months to find a new person, three to six months to figure out if they are the right fit, and three months for you to get up your energy and courage to fire that person.

Then you have to start the process all over again. As a startup, if you do that more than a couple times, you're done. You're out of business. "So nothing is more crucial at a startup than getting the people right."

Sallie says that recruiters aren't always the right people to trust. They have their own incentives and their own dog in the game. They often have big clients and aren't always bringing the right opportunities.

Finally, interviewing as we do it today is "absolutely broken." It's possible and common to have a great interviewee who never produces strong work. Sallie Provides three pieces of advice to help mitigate the risks of hiring:

  1. Expand your network: Get into the entrepreneurial networks in your community and get to know those people who are viewed as stars within the entrepreneurial circles.
  2. Look for relevant experience: "Not relevant experience 10 years ago, but relevant experience today." Of course culture fit matters but you have to ensure that these individuals are going to do the job as the job exists. 
  3. Check references: "What I really want you to do is check the back-channel references, The person who you know who knows the person who knows this person."

Dealing With Fear

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Fear is something that is less talked about in the world of entrepreneurship. Sallie worked on Wall Street running Smith Barney during the financial crisis. She says it was a scary and stressful time. She goes on to say,

"The truth is, during the financial crisis, I worked like crazy. It was nerve wracking. It was horrible. It was awful. I'd go home at night, I'd go to sleep at midnight and wake up at six AM. Now I'm an entrepreneur, and I have insomnia...

I did not sleep through the financial crisis, but I slept during the financial crisis. Entrepreneurialism is so scary, it's the one thing that's woken me up at three AM."

She wakes up in the middle of the night worrying about bugs in the software, about the hire that she did or didn't make, or about the product market fit. 

There's a lot "drudgery" in starting and running a business that we don't talk about in the heroic story of an entrepreneur.

  • Did you pay the state taxes?
  • Did you pay the workers' compensation taxes?
  • Are you putting in place a 401k? If you are, who is it through?

Sallie says, "The solution for me is hard work and putting in the time. Dotting the I's, crossing the T's. Recognizing that still, the number one determinant of success for any of us, entrepreneurial or not, is hard work."

Make no mistake, being an entrepreneur is scary. "Being an entrepreneur entails risk, and the way I want you to get over it is to enumerate those risks and work through them... And try to get some sleep."

There are larger risks like becoming an entrepreneur, and smaller risks, like asking for a raise or the next promotion. As you think about these risks, Sallie wants to ask a few things of you.

"First of all, I want you to practice. Practice makes perfect. And this comes in different forms. This can be sitting down with someone you trust to practice asking for the money or asking for the order. For me, before I can became an entrepreneur, this was my sort of practicing being an entrepreneur. I spent time with entrepreneurs, I thought about it as almost trying on entrepreneur clothing. And I really practiced it, I thought, could I do this? Is this the way I could spend my day? So first I want you to practice. 

The second thing I want you to do is ask for feedback. This is particularly important for us women because the research tells us that the gentlemen get more feedback at work than we do. And so we have to ask for it. That's asking for feedback on everything. It's asking for feedback on your pitch document. It's asking for feedback on your presentation. It's asking for feedback on how you're going to approach a meeting. I would do this all the time from day one of your career, but especially as you think about taking a big risk. 

The third thing I want you to do, is have a board of directors. Now, obviously, you can't just form it the moment before you take a risk, but through the course of your career, create a group of people. They may be folks from whom you asked for feedback some time ago who become your mentors or sponsors. Those individuals you can call on. Some of them might be in your place of work. Others might be at the non-profit you work at. Others might be at the school you went to. Others might be just a friend you've come across along the way. Anyone who can be there as a sounding board for you as you think about taking a risk.

Number four, network. Networking has been called the number one unwritten rule of success in business. It's the number one determinant of an entrepreneur's success or failure. So regardless of where you are in your career, it's important to build a strong network. Your next business opportunity is much more likely to come from a loose connection than from a close connection. 

I could go on and on. But those are the four things I want you to keep in mind as you're thinking about taking a risk. If you do these four things: practice, ask for feedback, have a personal board of directors, and network, I promise you you're going to mitigate your risk.