According to Wikipedia, Risk is a strategic board game, produced by Parker Brothers. It was invented by French film director Albert Lamorisse and originally released in 1957 as La Conquête du Monde ("The Conquest of the World") in France. The primary object of the game is "world domination," or "to occupy every territory on the board and in so doing, eliminate all other players.” Ultimately, the results of each turn and, by extension, the entire game are determined by rolls of the dice. The only control the player has on each turn is whether or not to roll the dice. So, by definition, if you don’t roll the dice, you have zero possibility of losing OR of winning.
Webster defines risk as “the possibility of loss or injury”. Of course, this is a more apt description of the word in when considering business or real estate. But the application doesn’t end there. Risk is the tool with which we measure each and every action in our lives, from everyday decisions to multi-million dollar real estate transactions. We don’t always realize it, but we are constantly assessing risk and acting on it every day.
In a commercial lease, risk is measured by both the landlord and the tenant with different tolerances and levels of risk driving their decision process. I recently met with a potential tenant who was planning to open a small shop in a grocery-anchored strip center. This was to be their first commercial real estate lease. Needless to say, I spent a lot of time explaining all of the different aspects of the lease. Things were moving smoothly until the tenant began talking about how much work they wanted the landlord to complete before agreeing to the deal. The tenant’s position was that he expected the landlord to put forth substantial funds for a build out in order to “give him a strong start.” As the deal progressed, I reported to the tenant that the landlord would require a higher rent level in order to agree. This was not an acceptable proposition for the tenant. It quickly became clear that the tenant was unwilling to accept the amount of risk that would be required to lease the space and open his business.
In this example, the tenant was essentially attempting to shift the majority of the risk of his new business to the landlord. He wanted all the benefit of starting his business, without any of the downside associated with it. This is not attainable. If you desire a certain outcome (own your own business) you cannot achieve that goal without a “possibility of loss” (risk). If you can’t stomach that possibility, then it would be unwise to start the business. Understanding the amount of risk you are accepting and taking steps to mitigate that risk is essential to success. This is true from the standpoint of the business itself as well as the size and cost of the space you are leasing.
It is impossible to go through life without ever having to perform without a net. Some people never try anything new, never step out of their comfort zone and certainly never succeed in building wealth. The greatest success stories throughout history begin with the players that take the biggest risks. And many of those stories involve immense failure PRIOR to immense success. My message is not to exercise carelessness, but rather to measure risk, manage risk and accept risk. Then, put a herculean effort behind your risk to increase your chances of success by as great an amount as possible.
Nothing ventured, NOTHING gained.