Weighing risk and reward in pursuit of business growth

Effective leadership decisions are at the heart of a business’s growth trajectory. Whether guiding a startup to become one of the country’s fastest-growing companies, or steering an established company to pathways that will foster new growth opportunities, the choices leaders make determine competitive advantages, drive innovation, and shape the company’s future.

To get to the heart of how business leaders approach decision making, Capital One Business teamed up with Inc. to survey 314 business leaders about how they make decisions and balance the risks and rewards that result from those decisions. Respondents tackled questions ranging from the influence of internal vs. external factors, to the value of using data vs. intuition on decision making and how they factor in risks to their business's growth—and even their own careers. The leaders surveyed offered a range of honest, candid answers, sometimes with surprising results.

While leaders’ decisions have an outsized impact on an organization’s success, decision making doesn’t occur in a vacuum. Leaders’ choices are often influenced by internal and external factors, as well as experience, intuition, data, and other factors.

External drivers cannot be controlled by an individual business leader, such as the state of the economy, inflation, or the regulatory environment.

These are leadership and organizational traits that can be influenced by leadership, such as strategic vision, an ability to execute, and team dynamics.

While some leaders prefer measured, data-driven approaches to making their next moves, others may opt for more agile, intuitive approaches and a willingness to pivot quickly when they feel doing so is necessary. The increasingly fast-paced impact of technology also plays an enormous role in leaders’ decisions.

Business leaders include both executives and entrepreneurs, who may be driven by different priorities in their roles. Executives are faced with organizational directives or priorities and their own career options, while entrepreneurs are responsible for determining what their business needs to survive and grow.

Business leaders are also influenced by their experiences—and past success breeds optimism. Survey data found that business leaders from high-growth companies have a much brighter outlook for the next 12 months than leaders from slower-growth companies in virtually every area, from the global economy to their own companies and careers.

To guide their organizations toward growth through a variety of economic conditions and other external drivers, leaders must constantly evaluate potential measures of risk in pursuit of reward. Assessing the risk vs. reward ratio that is right for each company, as well as its industry, operations, employees, and stakeholders, requires a careful balancing act. At the core of this dynamic is the leader’s risk appetite or the level of risk that’s acceptable based on potential decision outcomes. The survey found that leaders are more likely to take risks when it comes to personal career choices than when pursuing overall business growth.

What are the risks that give business leaders pause? Leaders ranked financial risk (the economy, interest rates, inflation) as the most acute risk to business growth (63 percent) and career trajectory (35 percent). Operational risk, strategic risk, and talent risk also keep business leaders up at night.

Business leaders are also challenged by the risks in digital transformation decision making. Half reported that decisions about how to use digital technologies to innovate their processes and business models are the toughest they have to make. Get these decisions wrong and they may miss the boat on new business models, meeting increased consumer demands, and competing in the marketplace. However, concerns about reputation-damaging cybersecurity and other issues make the risk vs. reward ratio murkier in some cases. Unrelenting advances in artificial intelligence (AI) and machine learning technology and applications only intensify the pressure to get these decisions right.

The blending of internal and external factors, as well as experience, data, and intuition in landing on a decision, isn’t an exact science, the survey found. As one leader put it: “Taking calculated risks is about finding the right balance between ambition and caution and making informed decisions that have the potential to yield significant rewards.” There are variations in how executives approach risk vs. how entrepreneurs do, as well as how each views risk factors. For example, more entrepreneurs than executives view compensation trends as risky and believe their decisions have a bigger impact on business success.

While 54 percent of business leaders report they lead with intuition, the line between going with their gut instincts and following data-driven insights is blurry. When asked specifically whether they rely more on data than intuition, 65% said they tend to put equal or more weight on data. However, the survey found that high-growth business leaders whose companies had more than 10 percent revenue growth over the previous year put more weight on intuition when making business decisions than leaders at slow-growing companies.

But these leaders aren’t just shooting from the hip. As the survey reported, “In a testament to humility and consensus-seeking, 41 percent of high-growth business leaders say they rely on the advice of their networks or colleagues more than on their own judgment.”

The business leaders surveyed were optimistic about their industries, companies, and careers in the 12 months ahead. Despite differences in decision making approaches and the risks they face, the data pointed to some key takeaways.

In the face of advancements happening at breakneck speed, leaders are challenged by digital transformation decisions. Choosing the right technology for their businesses and the speed at which to deploy it requires balancing the risk of making wrong choices and eroding customer trust against gaining a competitive edge that can make or break a business. 

Different leaders have different focus areas. Executives may prioritize different decision-making elements than entrepreneurs based on their organizations’ constraints and overall goals. In high-growth companies, priorities didn’t diverge, but survey data indicated that the intensity of leaders’ focus on growth priorities, as well as their collaborative decision making and optimism, resulted in decisions that produced higher growth.

While leaders ranked having strategic vision and the ability to execute it as top leadership traits, teamwork and integrity were close behind. Being able to gather input from others, rally and inspire your team to trust you and work together toward common goals makes the organization stronger and fosters trust.

For more content from the Risk & Reward survey results, check out the articles below.