How business leaders weigh financial risk vs. reward

This article is a part of our Risk + Reward series. Capital One Business and Inc. partnered to survey 314 business leaders in November of 2024 to explore the factors that affect how they weigh business risks and rewards in navigating modern business landscapes. View our key findings and other articles in this series.

More than half (51%) of business leaders say their top risks to growth are financial, according to a recent survey by Inc. and Capital One Business. Some of these factors, like the economy, interest rates, and inflation, are out of business leaders’ control. Other risks are those they choose in the pursuit of growth.

The way companies evaluate and address risk and opportunity is typically influenced by the risk tolerance of leadership and stakeholders. Some leaders are more averse to risk than others. However, regardless of risk appetite, there are ways to mitigate risk while still pursuing business growth. 

Business leaders can counterbalance the negative impact of some external factors, such as rising costs. To drive business growth despite the rising costs of supplies and manufacturing, Kyle Dennis, president of 5Boys Apparel, a family-owned and operated screen printing and embroidery company, took a calculated risk.  He started a private label to manufacture the company’s garments by partnering with a mill overseas. Incremental price increases were coming consistently from vendors for more than a year. Dennis and his team realized they were “losing control over our pricing structure,” he says.

Getting the new label up and running required financial capital and time. “You just don’t know what you don’t know,” Dennis notes. “Then you realize how big of a risk it is–like, oh, shoot, I am importing over a million dollars’ worth of shirts in the next 60 days.” The decision paid off, though. The private label brand now accounts for 65% of 5Boy Apparel’s business, and Dennis has better control of pricing.

A business leader’s comfort level with risk will impact their decision making. Dennis, for example, has a high tolerance for risk and thrives on taking chances. According to Inc. and Capital One Business’ research, though, 64% of business leaders will opt for sure bets versus making risky decisions. Regardless of personal comfort with risk, some degree of investment is often necessary for scaling a company. Business leaders can mitigate risk by analyzing available data and seeking input from trusted partners.

Lisa Larson-Kelley, founder and CEO of the marketing firm Quantious, describes herself as conservative when it comes to financial risk. However, she is taking a calculated risk by buying office space rather than renting. Her Capital One banker has helped her navigate the complicated process. Quantious will continue to operate with a fully-remote staff, with the office serving as a home base for local employees should they choose to come in, and as a meeting place for teammates from across the country when Quantious holds all-hands events. Larson-Kelley also plans to use the space to host interactive experiences for clients and prospects with cutting-edge technology demos in virtual reality (VR) and augmented reality (AR).“That feels like a huge step for us right now, especially with interest rates and everything the way it is. But I feel confident because I have that relationship with the bank,” she says.

When assessing a large investment, Larson-Kelley suggests running every possible financial scenario with your CFO or accountant. Additionally, quantify what you stand to gain from the investment. Another way to protect your business is only to take bets you can afford to lose. “I feel confident in taking this step [of buying office space],” Larson-Kelley explains. “But just be willing to lose–be willing to lose whatever you are risking.” Consider reaching out to business leaders who have been through similar experiences. They can offer a new perspective and strengthen your risk-reward analysis.

Understanding the risk versus reward in evaluating financial risks can help clarify your business’s potential gains and losses if the decision doesn’t work out. These factors can help business leaders take measured risks in pursuit of business growth.