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5 ways to build your tolerance for risk

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Taking risks can be the catalyst for immense scale or dire straits. Avoiding taking any risks at all leads to stagnancy and empowered competitors. The key is to know which risks are worth taking, and when and how to take them. This episode highlights the best conversations we’ve had recently about taking advantage of risk and how fortune favors the brave.

“There are risks at every step of the entrepreneurial journey. And learning how to understand and time those risks can give you the edge over your competitors.”

— Reid Hoffman
About the host:
reid_hoffman

Reid Hoffman is the host of Masters of Scale. A Silicon Valley entrepreneur and investor, he’s known for his spot-on insights on how to scale a startup. He’s a partner at Greylock and co-founder of LinkedIn, and co-author of the best-selling Blitzscaling and The Startup of You.

Also featured in this episode:

Stacey Abrams is a politician, lawyer, activist, author, and entrepreneur. She served in the Georgia House of Representatives from 2007-2017, and she is currently…

As CEO, Shellye Archambeau led a legendary turnaround of the tech company MetricStream. She’s the author of the book Unapologetically Ambitious.

Stéphane Bancel is the CEO of the biotech company Moderna, made famous by its pioneering mRNA technology that allowed it to develop a COVID-19 …

Tyra Banks is an entrepreneur, producer, writer, and model. She’s the founder of Bankable Productions, author of Modelland, and creator of “America’s Next Top…

Ken Chenault is the chairman and managing director of investment firm General Catalyst and former chairman and chief executive of American Express.

Kathryn Finney is the CEO of Genius Guild, a venture studio that invests in Black entrepreneurs.

Sallie Krawcheck is the CEO and co-founder of Ellevest, an investment platform aimed at women, and the owner and chair of Ellevate Network. Previously,…

Sheila Lirio Marcelo is the founder and former CEO of Care.com, the online marketplace connecting working families with care providers. Sheila is now a…

Transcript of Masters of Scale: 5 ways to build your tolerance for risk

HOFFMAN: Hi listeners, it’s Reid. You’re about to hear a special episode of Masters of Scale called “Five ways to build your tolerance for risk.” 

There are risks at every step of the entrepreneurial journey. And learning how to understand and time those risks can give you the edge over your competitors. In fact, your willingness to take smart risks can make the difference between a company that thrives and one that meets a painful death. 

But risk-taking isn’t hardwired into us as humans. (After all, if we take too many risks, our chances of personal survival round to zero!)

So entrepreneurs and business leaders are faced with a challenge. How can we build our tolerance for risk in a way that helps us embrace the biggest leaps? 

The answer is: you build that tolerance by honing your risk muscles. And you keep honing them as you build your business. Because the more your company scales, the more it stands to lose. That’s why large organizations are often targets for nimble startups. 

But you’re not alone. We’ve heard some incredible stories about taking risks from our guests on Masters of Scale. Some spoke to me, and some spoke to Bob Safian on Masters of Scale: Rapid Response. These are critical insights that will help you learn to take bigger, bolder risks — and time them just right. 

Don’t worry if building this tolerance takes time. Evel Knievel didn’t start his daredevil journey by jumping over Snake River Canyon, he started small like jumping over Snake River Puddle. The point is, start practicing now. 

[THEME MUSIC]

HOFFMAN: I’m Reid Hoffman, co-founder of LinkedIn, partner at Greylock, and your host. And this is “Five ways to build your tolerance for risk.”

Number 1: Don’t fear risk; understand it! 

The first obstacle that tends to stand in the way of risk-taking is simple — it’s fear. For a daredevil, the first step to jumping a canyon is building the courage to get on the bike. 

But daredevils have a lot more to consider than, “To jump or not to jump.” Risk isn’t a binary; it works on a gradient. How much risk, of what type, how often? These questions are central to an entrepreneur’s journey. They won’t remove the risk you’re facing, but they help you understand your options, and improve your odds of success.

To show you what I mean, here’s a story from Stacey Abrams. You might know her as a political powerhouse, and the founder of two voting rights organizations, Fair Fight Action and the New Georgia Project. But she’s also had a parallel scale journey as an entrepreneur. 

STACEY ABRAMS: I describe myself as a reluctant entrepreneur. Heretofore, I was very, very, very fond of paychecks.

HOFFMAN: But Stacey eventually overcame her entrepreneurial reluctance, and started not one, not two, but three companies with her business partner, Lara Hodgson. Lara acted as a natural counterweight to Stacey’s cautiousness.

ABRAMS: We refer to ourselves as “Yes” and “But.” She is “yes,” and I then go, “but…” 

HOFFMAN: Stacey and Lara put their “Yes” and “But” approaches to the test when founding their company Nourish. It was a new market where neither of them had any expertise.

ABRAMS: Lara had had her son Connor, and she was trying to make a bottle for him while we’re sitting at lunch. 

She had to send the waiter to go and guarantee that she had clean water, and there was a lot of trust in that moment for her. She said, “I wish Dasani made a baby water.”

We started talking, and I said, “Well, what do you think?” And she said, “I want to try it.” 

HOFFMAN: This was the “Yes” moment so many entrepreneurs will recognize. And both Stacey and Lara claimed it. They founded Nourish, a brand-new baby water company that would sell purified water sold in wide-necked bottles for mixing formula on the go. 

ABRAMS: Neither of us had ever been involved in manufacturing. It was a new construct. We had never seen anything like what we were putting together. So she and I gave ourselves the task of figuring out what this can look like.

HOFFMAN: In this story, we hear both sides of the “Yes” and “But” approach. Yes, there is a need for this product on the market and we should run with it. But, we need to learn more about manufacturing before we go too far down the rabbit hole. 

No matter how intelligently you’ve assessed your risks, there’s always a moment of vertigo when you look down and see how far you could fall. To ignore that feeling is to ignore the reality of starting a business. 

But to succumb to that feeling is to undercut your best asset in those first moments; you’re gathering velocity.

ABRAMS: What benefited us and me, I’ll speak for myself for a moment, is the intellectual curiosity. I didn’t know how it worked, and I wanted to know. And Lara and I have that shared curiosity, that desire to understand how things come together.

She’s actually an engineer, by training. I’m just nosy. So it was, “How do you do this?” And we investigated. We went to visit plants, and we read books. And so, yes, there’s a knot in the pit of your stomach. But there was also the opportunity to learn about a whole new industry that could transform how people live their lives.

HOFFMAN: It worked well for one of them to always be looking ahead to new opportunities, and one to always have an eye on the essential risks. 

You can learn how to better separate the essential risks from the extraneous ones. And that’s where having both “Yes” and “But” on your team comes into play. If you’re a company of gung-ho risk takers, every opportunity is going to look dazzling, and you may end up chasing bad bets. If your team is ultra-cautious and risk-averse, every new idea will seem like a disaster waiting to strike. 

The “Yes” and “But” approach to decision-making is all about learning how to weigh the risks in front of you. It helps you take off your rose-colored glasses — and your “doom-and-gloom” monocle — and see your options with clear eyes. So next time you’re facing a risk that makes you tremble, get curious instead. 

Number 2: Go after the data

OK. So you’ve learned how to not fear risk, by better understanding your options. But how do you gain that understanding, so you know that you’re sizing the risk accurately? It can be said in one word: data. No matter what phase of growth you’re currently experiencing, you need useful, cost-effective data to understand everything from product-market fit to customer behavior. And that understanding will help you know which risks are worth taking, and when. 

Someone who knows the power of data to help understand risk is Sheila Lirio Marcelo. Sheila is the founder and former CEO of Care.com, the online marketplace connecting working families with care providers. When she started Care in 2006, many people thought finding a babysitter on the internet was an extremely risky behavior. But Sheila was seeing signs that it was an idea customers might be ready for. 

SHEILA LIRIO MARCELO: Sometimes you can come up with the best idea, but if the marketplace and the macro environment isn’t ready for it, even though the technology may be phenomenal, it’s just the consumer mindset. So I was following on the shoulders of amazing companies that had started to influence and change mindsets, that we were ready for a marketplace that was very personal.

HOFFMAN: But where can you go for the data that will help test your theory? And can you track it early enough to matter? 

MARCELO: You can have a great vision and idea, but start with a lot of data and testing. And we were testing light.

HOFFMAN: Care.com was “testing light” partly out of necessity. Until you build your marketplace, you don’t have much access to user data. So Sheila also had her team do external data testing to find out which cities were most likely to have people source caregivers online. 

MARCELO: So this is not that sexy and not super complicated technology. We hired 20 college interns and came in and analyzed Craigslist, honestly, and said, “Hey, where are the top 20 metros? What are the key care verticals? And educate us on supply and demand of both caregivers and families, so that we have a thesis from the beginning.”

HOFFMAN: What I enjoy about this method is its simplicity. Hiring a small team of college students to study Craigslist is something you can stand up cheaply and fast – and get results fast too. It’s not just about getting data. It’s about getting data with enough speed to be ahead of the competition.

Once Sheila and her 20 interns had compiled their findings, they used it to determine which markets Care.com should pursue first.

MARCELO: We came together with a thesis. We picked 20 top metros from that analysis and testing.

HOFFMAN: There was a lot riding on that decision. A simple misjudgment could spell the death of the company. So not only was the data itself critical, but so was Sheila’s interpretation of it. Data gives you the tea leaves; it’s your job to read them. 

One of the riskiest decisions a start-up can make is where to launch. An A+ idea with an A+ team could still struggle if the landing place is a poor fit. 

So Sheila went in dogged pursuit of research and data. She started small and made the most of what she had. The data she gathered gave her a better picture of which marketplaces might be ready for her product and help lead Care.com to scale. 

Sheila’s “light testing” is a great example of how you can gather data without a huge research budget or hundreds of employees. Keep that in mind as you hear this next story, from supermodel and entrepreneur Tyra Banks.

Tyra has never been one to shy away from bold moves. But in early 2020, she was faced with a massive pivot and needed to gather data fast.

She was poised to open a brand-new, multimillion-dollar venture in immersive destination retail. If you’re not sure what that is, listen up.

TYRA BANKS: What ModelLand is, it’s theater meets shopping meets immersive entertainment. So it is a new way to shop, but you’re also inside of a play. I raised capital, millions and millions and millions of dollars.

We had 100 employees. We had actors, we had dancers, we had customer service, every little thing you can think of. I mean, very deep immersive, my dream, nine-year-old little girl dream.

HOFFMAN: But then, like so many other startups in 2020, it got stopped in its tracks by COVID. But she took five of those 100 employees, and pivoted again to a product that may seem surprising for a model emerita.

BANKS: Smize Cream, which is an innovative ice cream company.

It went from an idea to have been launched, which is crazy, the craziest pivot I have ever done in my life. To go into consumer packaged goods and food and to go into a place that was passion for me, but not expertise, was pretty crazy. But I am so proud of this product. I’ll be a hundred percent honest, when I started I had a passion for ice cream, but just thought good ice cream was good ice cream, and I did not understand it. 

I had said yes to some product that I thought was good, but then we had some kind of technical difficulties with the manufacturing process, so it allowed for us to slow down, and Reid, I ordered from every single ice cream company in this country that delivers. I have about 250 pints of ice cream. I have like six freezers in our garage, and I tasted, “Ooh, too dry. Ooh, too much air. Too much fat. Ooh, too much this. Ooh, not enough this.” And then I was like, “Oh my God, this is no longer a passion, this is an expertise.”

HOFFMAN: We don’t all have the good fortune of writing off our ice-cream habit as “data analysis.” But Tyra was absolutely using data to help execute a pivot. In this case, it was product data for research and development. 

BANKS: I said, “I need people to say, ‘This is the best ice cream I have ever tasted.’” I need people to have their eyes roll in the back of their head, or them to close their eyes when they put this in their mouth, because that is the inaudible, “Oh my God, this tastes so good.”

HOFFMAN: Tyra and her team needed Smize Cream to be “eyes roll back in your head” good — because while Tyra’s personal brand was strong, she had no prior credentials in food. Launching an inferior product too soon would be an unwise risk. 

But with data, Tyra could leverage her new ‘ice cream expertise’ into a product she could be proud of and one that could differentiate itself in a crowded field. It would still be a risk but a much more palatable one.  

The new pivot paid-off as Smize launched in grocery stores nationwide in the summer of 2021. And then, as COVID vaccines rolled out, Tyra was able to take the brakes off ModelLand and the theme park finally opened its doors in September 2022, presented by who else? SmizeCream. 

If the thought of heights makes you nervous, I apologize. But I’m putting you back on the motorbike. To make that jump over the canyon, you need to gather data. How high is the cliff? What equipment and resources are available? What trajectory will let you find an updraft or deploy a parachute to slow your fall while you’re building?

To grow your tolerance for risk, look for these data points wherever you can. Once you do that, you’ll find your fears start to be replaced by your excitement to take the jump. 

Number 3: Commit to the jump, and work backward from the worst-case scenario. 

So far, we’ve talked about how to curb your risk anxiety by understanding your odds and gathering data. But it wouldn’t be called a ‘risk’ if there wasn’t a chance you could miss. The phantom of the worst case scenario is always lurking. And if you’re not careful, that spectral presence can cloud your decision-making, and cause you to hesitate or take half-measures. This is a mistake — because often the biggest risk is not taking one. 

So it’s critical that when you do decide to leap, commit to the jump, and take the risk wholeheartedly. 

I talked to Shellye Archambeau about this, because few leaders have a better understanding of how to commit to smart risks and win. 

Shellye led one of the most incredible Silicon Valley turnarounds that you’ve never heard of. It started when she accepted the role of CEO at the troubled software firm Zaplet when it was mere months away from bankruptcy. What gave Shellye the confidence to walk into the burning building? Let’s listen. 

SHELLYE ARCHAMBEAU: I decided I wanted to be a CEO when I was in high school. Which is super rare, especially for a Black female. And therefore it was always about: “How do I improve the odds?” 

HOFFMAN: It’s true. Shellye had her sights trained on becoming a CEO since she was a teenager. And she made a series of choices that would improve her odds. She got into a top-tier business school, and then built a career at IBM. But though she found success at IBM, it eventually became clear that her path was veering away from the CEO’s chair. She knew if she wanted to achieve her goal, she’d have to take a major leap.

ARCHAMBEAU: When I decided to leave IBM, that was a big risk. I was born and raised in IBM from a career standpoint. If you sliced my wrist, I bled blue. So leaving IBM, the mothership, was definitely a risk.

HOFFMAN: It was a risk, but not taking action was a bigger one. Because staying put would mean saying goodbye to her mission. So she committed to her strategy — and jumped. 

ARCHAMBEAU: I said, “Here’s what I’m gonna do.” At IBM, a lot of the jobs I took were fix it, turnaround, broken things, et cetera. I said, “I know how to fix things.” I’m gonna go after a C minus to D kind of play. I’m gonna go after a problem child. But, at a top tier venture firm.

HOFFMAN: Shellye knew if she wanted to stand out as a leader, she would need to play to her strengths and lead a high-profile turnaround. She didn’t just stumble on a risky venture, she actually went searching for one. 

At the time, none were more risky than Zaplet, a company focused on providing interactive HTML in email. This was before Gmail; they were ahead of their time, but they had no business model or strategic plan. The company was being managed by Vinod Khosla, a Venture Capitalist at Kleiner Perkins. And in 2004, when Shellye came across Zaplet, the company really fit the bill for a D-level company on the edge of collapse.

Shellye considered the worst case scenario.

ARCHAMBEAU: I said, “Alright, if it doesn’t work, nobody thought it was gonna work anyway. But, at  least I’ve had a top tier VC behind me. They’ve had a chance to see what I can do and who I am. And therefore, I’ll hopefully get another opportunity.” So that was my “Worst case, can you live with it?” Best case was, if I can take something that’s broken and I can fix it, at a top tier firm, I can then basically decide what I want to go do next, because I will have proven myself.

HOFFMAN: Notice how Shellye reacted to the worst-case scenario question. She didn’t let it shorten her stride. Instead, she used it as fuel to take bigger, bolder leaps — because she knew she could live with the outcome either way. 

In this case, the next bold step was sitting down with Vinod Khosla at Kleiner Perkins. And when they talked, she didn’t pull her punches.  

ARCHAMBEAU: I said, “You have a reputation of being very forceful and of sometimes whipsawing companies around. I just need to know, are you hiring me to be the CEO of Zaplet to run it the way I feel it should be run, or are you hiring me to be CEO of Zaplet to implement your strategy and plan for the company? I just need to know which job you’re hiring me for.” Pretty risky to ask that kind of question. Here I am trying to find a job, right?

HOFFMAN: Speaking this way to Vinod was definitely a risk! But Shellye knew that not asking this question would be a bigger risk because it would hurt her ability to actually do the job.  

ARCHAMBEAU: He looked at me for what seemed like 10 minutes — it wasn’t. Leaned back, and then he smiled, and he said, “I am forceful and yes I have strong opinions.” And he goes, “But I hire CEOs to be CEOs.” And I said, “Okay.” 

HOFFMAN: Shellye’s risk paid off. She got the job, and got to work assessing the next set of risks: turning Zaplet around. 

ARCHAMBEAU: My view was if I had a platform, you can re-purpose platforms to almost any area and space. So if I could just figure out a problem that we could solve, then we should be good. So, that was my strategy.

I couldn’t just go raise money, because Zaplet’s tainted. We needed to do something different. So Vinod identified a company called MetricStream, which was smaller than us and they were really doing operational compliance. But it was close enough. And they were apps people.

So we put the two companies together, took MetricStream — much better name than Zaplet for the enterprise — and with that configuration and a new business model in plan, we then raised money with Kleiner as our lead. And basically re-did the company. 

HOFFMAN: Shellye went on to lead the company through the complex merger and head-spinning pivot. And MetricStream has now grown into a leading governance, risk, and compliance company valued in the hundreds of millions of dollars. Shellye stayed in that CEO role until 2018, and is now board director at Verizon, Nordstrom, and other companies. But in looking back at her time at MetricStream, the size of the leaps still seem staggering. 

ARCHAMBEAU: It was crazy, if you think about it. I took a job where I was CEO of a company that was running out of money, that hadn’t sold like a new customer in quarters, that most of the investors had mentally written off. Why do I wanna be CEO of a company like that? That’s completely broken and needs to be fixed and turned around? So, high risk.

The way I saw it was, yes, it was definitely a risk. But I learned throughout my career that people were willing to give me opportunities that were risky, where things were broken. And I could get those opportunities more easily than get something that was working well.

But the reason I take the bigger bets is, I’ve never believed that the odds were in my favor. 

And so if I just play the odds and take the safe bets all the time, I’m not gonna get what I want out of life. Life may be fine, I’m not saying it’s gonna be a bad life, but I’m not gonna get what I want out of life. And that, to me, means you take the bigger bets and you take the risks.

HOFFMAN: Now, again, I think that’s exactly right: intelligent, calculated risks with alternative plans and mitigation. If more people did that, we’d have a much more productive society.

HOFFMAN: Shellye built her risk tolerance by always having a plan but then committing to the risks she chose to take. 

Imagine again you’re on that motorbike, preparing to jump the canyon. You can’t make it across if you hesitate before you reach the edge. In that critical last moment before liftoff, pumping the brakes commits you to a fall. Instead, accelerate — and you may just get the liftoff you need.

[AD BREAK] 

HOFFMAN: We’re back with “Five ways to build your tolerance for risk.” If you’re enjoying this episode, share it with friends by clicking the “share” button in your podcast app. And to hear my complete conversations with iconic founders like these, become a Masters of Scale Member at mastersofscale.com/membership. 

Number 4: Share your risk mindset

By now, we’ve looked at several ways to embrace risk, instead of running from it. If you’re starting to feel like you’ve mastered your own risk mindset, great! But it’s meaningless if the rest of your team is not aligned with the same approach. You need to get your whole team comfortable with the notion that you might fail. Otherwise, you may be finding yourselves pulling in opposite directions, at a time when the stakes couldn’t be higher. 

A particularly timely example of this can be found in the story of the biotech company Moderna, under the leadership of CEO Stéphane Bancel. Unlike the risk-friendly environment of Silicon Valley, in the pharmaceutical world, risk is the bogeyman., something to avoid at all costs. Especially, when the entire world is watching. 

You’re probably aware that Moderna developed one of the world’s first highly successful vaccines for COVID-19. This success was made possible by Moderna’s landmark innovations in mRNA technology, which we’ll get to in a moment. But this progress only came after years of testing failure, anxiety and ire from other industry players.

STÉPHANE BANCEL: This is not an industry where you have the most, let’s say, risk-taking people, for example, because as you know, most drugs fail in the clinic in pharma.

And so when the drug works, the key motto is, don’t break anything. Because the MVP of that drug the day of launch could be 20, 50, a hundred billion dollars in one drug. So imagine the brand manager of that drug doesn’t have a lot of room for freedom. They don’t want to take any risk because there’s so much at stake. And then there’s a regulatory side of it where you build the process once, and then you have to go back to the FDA. And most people say, “I don’t want to do that. So I don’t change the process.” 

HOFFMAN: “Don’t break anything” is definitely an anti-risk mindset. And it makes perfect sense that an industry that deals with human health outcomes would be naturally risk-averse. But Stephane wanted his team to set a more ambitious standard of success. 

BANCEL: And so, one of our mindset that we articulate very clearly to people is you cannot have impact without taking risk. And we’re all about impact to patients. 

HOFFMAN: Well before anyone had heard the name “COVID-19,” Moderna had been quietly overseeing a revolution in mRNA technology. 

They’d built a platform model for drug treatments and vaccines. Previously, any new treatment would need to be created from scratch, like hand-crafting an artisanal toy. But mRNA technology works more like Mr. Potato Head, with a base that lets you switch out different components quickly to adapt to different use cases. And, they’d built a software system that helped scientists share information and track down genetic sequences. 

Stephane knew this platform had great potential. But in early 2020, it was relatively untested; Moderna hadn’t yet released a single product to market.

That’s when reports started coming out of Wuhan, China that a novel coronavirus was on the move. 

BANCEL: I spent a few days just trying to convince my team, and my board that this is a 1918 pandemic happening, and we need to change everything, how we organize, how we focus on this one. Because for the first few weeks before that, I had a few people on my team saying, “Dude, why are we wasting time on this Chinese virus? It’s total destruction, and we have 20 great drugs. It’s going to be going in a few months.”

HOFFMAN: Stéphane’s team wanted to stay the course on their plan to roll out the drugs they had in development. Pivoting their attention to a disease the world knew very little about seemed to them like a bad risk. But Stéphane was hearing alarm bells starting to go off around his network, which included world-leading epidemiologists like Richard Hatchett and Sir Jeremy Farrar.

BANCEL: And so they are both infectious disease docs, which I am not. And we talk to each other 3-4 times a day. And we also get a lot of anecdotes from doctors they know in China that send them email and text them and send them data that’s not public yet, and so on.

HOFFMAN: Stéphane made his case, backed up with the information he had collected from his network and convinced his team that this outbreak needed their undivided attention.

BANCEL: And so I have to pivot the company. I have to think about: how do I keep the pipeline working? Because if I’m wrong, I’m going to lose a lot of time and resources. And then, we have not enough money.

HOFFMAN: Moderna’s platform was tailor-made to respond quickly to a pathogen like coronavirus. The mRNA vaccine technology spearheaded by Moderna meant a vaccine could be designed in minutes rather than months.

However, putting that vaccine into production so that it would be ready to roll out if the Wuhan outbreak became a pandemic would be a huge upheaval — and risk — for the company.

BANCEL: And then I’m like, “But if it works…” Which I believed then. That’s a piece that is really crazy about this technology because it’s software-like, and we had worked on corona before, and we had worked on nine vaccines before. So if you put all those things together, it’s like, this is going to work.

HOFFMAN: In order to establish the right risk mindset in your team, you need to be intimately acquainted with your business, and all its exposure points to risk. 

Now, the “right” risk mindset for one company may be vastly different from another. It depends on your goals, your timeframe, your competitors. Whatever the right risk framework you decide for your company, you need to make sure everyone on your team leans in to it. 

BANCEL: It’s like going to Vegas. If you’re lucky, you win the lottery. If you’re not, then you have zero. And so, because I’m not a gambler personally, I’m like, “Yeah, no thank you. No thank you.”

It has a 5% chance of working.

But if it changes … it’s going to change the world forever, for every human being on the planet forever, not in 5 or 10, it is forever. And in business forever, is a pretty good timeframe. 

HOFFMAN: The way Stéphane got his team on board is not just important for biotech companies moving fast in a pandemic. It’s one of the biggest challenges when leading a start-up: you will frequently need to make a bet on how a situation is going to develop. And ideally, you need everyone on your team to buy in. This is why staying in sync with your team is so important; it makes it easier for everyone to get on the same page. And this greatly increases your odds of success.

What I want you to hear in Stéphane’s story is not just his informed approach to risk-taking. It’s how he shared this mindset with his team. A group’s tolerance for risk can actually be greater than any one individual’s, if everyone is clear on mission and goals. Imagine the difference in confidence between a single soldier running out of the trenches and across the battlefield on their own, and one that moves with their platoon, moving together as a unit. With that kind of support, and a shared battle plan, your tolerance for taking risks is going to increase substantially. 

Another leader that knows the value of a shared risk mindset is Kathryn Finney. She’s an author, investor, and founder of the social enterprise organization Digital Undivided. Kathryn joined Bob Safian on Masters of Scale: Rapid Response after the release of her book, Build the Damn Thing! How to Start a Successful Business If You’re Not a Rich White Guy. Writing for an audience of entrepreneurs is one way Kathryn shares her battle plans. And she shared with us the origin story of her own confidence in the face of risk.

KATHRYN FINNEY: I grew up with parents who I saw take a big risk and win. And I think that’s a big deal for any child to see your parents take a risk and win, but particularly a young African-American girl, seeing her parents take this big leap, and it turns out to be good, and good things come from it. 

HOFFMAN: Kathryn’s father graduated high school and college in his 30s, going from brewery worker to senior software engineer at Microsoft. Changing careers was a risk for their family, but it paid off. And this example continues to inspire Kathryn, as she finds ways to help entrepreneurs take risks on themselves. 

You can hear that as she describes launching The Doonie Fund at the start of the pandemic, which provides microloans to Black women entrepreneurs. 

FINNEY: It was April 2020, and Digital Undivided had authorized a bit of money to go to some of our portfolio companies who were really struggling, because it was very, very hard to receive the PPP loans then, especially if you didn’t have a private banker. And most people of color and most humans, in general, don’t have private bankers. And so I was like, “Well, what if I just give out a little bit of money just so that people know that I see them,” because I started off as an entrepreneur myself. I know how hard it is to make payroll, and I know how hard it is to manage through a difficult time.

HOFFMAN: Kathryn saw these microloans as a way to encourage Black women entrepreneurs to keep going, even when doing so seems risky. 

FINNEY: It was just like, “Baby, you can do it” money. That’s what I call it, like your grandma gives you a little bit of money. It’s not a lot of money, but it’s showing that she believes in you. We gave out over $150,000 worth of what we call micro investments to over 1,500 Black women entrepreneurs in a six-week time period. 

HOFFMAN: Those six fast-and-furious weeks of micro investments helped the businesses who received the money. But Kathryn also discovered that it helped improve her own mindset and that of her team. 

FINNEY: It not only gave me the energy I needed to figure out what was next and how I could help change the world, but strangely enough, it had a very big impact on the staff of my company and my organization, who at the time were feeling completely helpless too.

And the impact was, it changed my life. I had people who emailed me and said the email that I sent them, telling them to continue and that they should continue on, they placed it above their computers and looked at it every time they thought that they couldn’t do it. We had people who took this small amount of money and changed their websites to sell masks and ended up selling almost $100,000 worth of masks and then gave $10,000 back to the organization. And we only gave them $100, so the return on investment was crazy.

The way the recipients have used this money, this little $100 is incredible. And it’s a true testament to Black women, to our path in entrepreneurship. The fact that we’re one of the most resourceful groups of people in this world.

HOFFMAN: Notice that the risk Kathryn and her team took on was small — just $100 at a time. But placing these small bets on 1,500 entrepreneurs helped those business owners bet on themselves. This is the kind of risk mindset that creates a virtuous circle. If you know you have people who believe in you, it becomes easier to take a risk — even if you fail. 

FINNEY: There’s a bit of a cult of entrepreneurship right now, right? I think there’s a difference between being an entrepreneur and entrepreneurial thinking, and entrepreneurial thinking you can bring into anything that you’re doing. It’s thinking big, it’s thinking outside the box. All of those things can be brought into any job, but being an entrepreneur as an occupation or even a vocation is a whole different ball of wax, and being an entrepreneur, you have to be tough. You have to be very comfortable with failure. For some people, the fear of failure is so fatal that they can’t take it as a data point.

For them, entrepreneurship may not be the best, and that’s okay. That is very, very okay, but for those who can do that, entrepreneurship is an amazing path to let you lead the life that you want to lead. 

HOFFMAN: Kathryn is right; being a founder isn’t for everyone. And that’s fine! But we all can get better at dealing with failure. Indeed, we all need to. Which is why helping your team understand risk is not just better for you. It’s better for them. 

Number 5: Lean into your principles

OK, we’ve now learned how to understand our risks, how to gather data to take better risks, and how to hit the gas and accelerate when we decide which risks to take. And, we’ve learned how to share a positive risk mindset with our team. So for this last item, we’re going to look into the why of taking risks. Not just the financial benefits of a decision, but the principles underneath.  

Finding your tolerance for risk is often having to distill what you actually care about. A high-pressure situation will reveal what risks you are realistically willing to take versus those that sounded good on paper. 

And in fact, a daunting decision can often trigger a leader’s fight or flight response. If you’re not careful, a sense of self preservation for you or the company could mean that your principles fly out the window. But hang on! Those principles can actually increase your tolerance for risk. 

To show you what I mean, here’s a story from the CEO and co-founder of Ellevest, Sallie Krawcheck. Like many of the leaders you’ve heard from in this episode, Sallie was faced with a terrible choice at the start of the pandemic — whether or not to lay off employees. As she told Bob Safian on Masters of Scale: Rapid Response, retaining staff was a big risk to the company’s survival. Let’s hear what happened next. 

SALLIE KRAWCHECK: Going into March, we were pulling together an investment round. We had some number of existing investors lined up for it, and then understandably, the investor pulled away, as you and I would have done. And so I am looking at this uncertainty knowing that we have a limited amount of runway.

And so the hardest conversations of my life were with my co-founder who brought a proposal for reducing the head count of the company by a third. And having discussions and debates at the leadership team saying: “The business may be imploding. Should we lay off 25% of the company or 30% of the company?” 

HOFFMAN: If you think back to Tyra Banks’ ModelLand story, this situation was painfully common. And yet, every leader who had to face this choice had a moment of feeling like they were facing it alone.

KRAWCHECK: I don’t think I’ve ever been lonelier in my life. And by the way, Bob, I’ve laid off more people than anybody you even know.

I worked in big Wall Street firms. You’d be like, “Oh, we got to lay off 1,000 people.” We have 100 employees around, about. The thought of laying off 30 of them and into a pandemic and an uncertain environment? People who had bought into my dream. 

HOFFMAN: Sallie’s dream and Ellevest’s mission is to empower women investors. Her employees had already taken a big risk by leaving the security of a bigger Wall Street investment firm to work for her start-up. 

KRAWCHECK: And I remember my co-founder trying to reach me because he’d had the plan and saying, we’ve got to start laying these people off. 

If you cut people now you’re a weaker company on the other side of this. I mean, there’s no doubt, right? The only people who it’s worse for when you do a layoff than the people who you laid off are the people who are left. And so we would have taken away our ability to achieve our product plan, which would have directly impacted our ability to raise the next round, directly impacted our results, and you’ve broken the social covenant with your workforce. 

HOFFMAN: Sallie believed that breaking this social covenant might be even riskier for her business than keeping too many employees on the payroll. More importantly, she knew that layoffs at the height of a pandemic went against her principles as a founder. So she leaned into those principles. And they gave her the strength to accept a massive risk. 

KRAWCHECK: And so I said, “We just, we got to buy some time here without damaging the company.”

Give context, show the business, and then request that people who were making below X amount, no pay cut. People who were not in the leadership team, X pay cut. People on the leadership team, three X pay cut. Me, 100%. Cut me 100%. And promise to then update them every single month about what are the metrics before we take the salaries back up, what do we need to see? What do we need to accomplish? And so just being super clear with everybody and super vulnerable of this is where we are, this is what we have to see, this is how we’re tracking. And we ended up, in the course of the year, taking things back up as it turned out and really avoiding what in hindsight, but even at the time, would have been a fatal error for the business.

SAFIAN: And this was not a course that everyone in your leadership team agreed with.

KRAWCHECK: No. No. It wasn’t.

HOFFMAN: By leaning into her principles, Sallie not only shored up her own risk tolerance, she did the same for her entire team, and the wider organization. And when the risk paid off, those same leaders who had been skeptical now had proof that a principled decision could pay off. That’s a learning that Ellevest will be able to apply to the next difficult decision, and the next. 

This is something founders and leaders can also apply more broadly to the question of taking a stand on social issues. In a time of increased polarization, any business that stands up and articulates a set of values runs the risk of alienating a bunch of customers. But those values are what give your organization the strength and guidance to make tough calls. 

To talk about this, Bob Safian spoke with former CEO of American Express, Ken Chenault. Ken is also the chair of the investment firm General Catalyst. Ken believes that when businesses stick to their principles, they get stronger, period. Let’s listen. 

KEN CHENAULT: I’ve said over the last close to 15 years, that corporations exist because society allows us to exist, and we have a responsibility and an obligation.

So yes, we can’t speak out on every issue, but for example, the issue of voting rights, what is more fundamental? That’s the lifeblood of our democracy.

Business gets involved in issues that affects their business and has a broader impact on society. But yet, some of these same people are saying, “I don’t want to get involved in the broader society. But I’ll get involved in issues that affect the broader society, as long as it helps my company alone.” That doesn’t work.

HOFFMAN: While having a strong mission and concrete values may come naturally to you, what any entrepreneur can work on is citing these ethics and standards and making sure they are known throughout the entire team.

CHENAULT: Let me be very clear. I don’t think the workplace is one where you’re getting into arguments every day, and you’re not doing your work. The priority clearly has to be: you do your work. But to, in fact, say, “I don’t want you at your break to, in fact, engage in talking about issues aside from work,” I just don’t think that’s appropriate. Are you telling me I can’t talk about my family? I can’t talk about things I believe in, that I’m passionate about.

What I would ask people who take that position is I hope you then remain consistent that you will not talk about broader issues that will benefit your company. You cannot have it both ways. And I don’t believe in that type of censorship.

I just believe that corporations can be a force, and I really do mean this, a force for good, and they can also be very successful. People would say, “Well, Ken, that’s a contradiction.” I would say part of what we need to do as leaders is we manage and lead through seeming contradictions.

HOFFMAN: Navigating through contradictions is what leaders do. And just like exercising your principles, it’s a skill you can hone over time. Each time you stand firm on your values, you will bolster your tolerance for taking that risk next time. 

And you don’t need to be a high-profile CEO to exercise your values through your business. This is something every manager, employee, or contractor can do. Every time one person takes a risk and sticks up for their principles, the less risky it becomes for the next person to do so. 

So if your company is wrestling with a risky but principled decision, I encourage you and your team to look inward. Figure out: what are your deal breakers, and specify your common mission. I’ll reiterate: there is risk in doing this. A mission can go unsupported by customers or individuals on your team. But the cost of not acting on your principles can be much greater than the cost of standing by them. 

Risks are everywhere, at every phase of your entrepreneurial journey. So you’ll need to build your tolerance for risk to be ready for the challenges ahead. So rev your engines, lower your helmet, and get ready to make the jump. 

I’m Reid Hoffman. Thanks for listening.

Masters of Scale’s mission is to democratize entrepreneurship. Launched in 2017 as a weekly podcast featuring Reid Hoffman, we’re now two weekly podcasts — Masters of Scale with Reid Hoffman, and Masters of Scale: Rapid Response, hosted by Bob Safian — as well as an award-winning daily learning app, a best-selling book, virtual and live events, and more, serving a global community of founders, funders, and leaders looking to innovate at scale.
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