A few years back, I realized I needed to challenge myself more and expect more out of myself.  I started doing things that seemed risky, or at least not 100% within my comfort zone.  This has lead to simply amazing things, and surprising myself regularly about what’s possible when you just simply decide to try.  Sometimes, it’s telling yourself failure isn’t an option, and you need to do whatever it takes to make something work.  Sometimes it’s doing prep work so you’re ready for opportunities when they come to your doorstep.  But you still have to triage the opportunities that come your way- which ones are worth your time and effort?  Which ones are central to your mission?  Which ones are, perhaps, not central, but offer benefits that are worth the time and effort?

These questions largely bring up the concept of risk analysis.  In law school, we read all sorts of cases about things going horribly wrong for folks.  )If fact, I’d say if you are resorting to filing law suits to sort out your problems, you’ve been surprised and turned out to have risked more than you bargained for.)  Law school is largely about teaching you the rules of the game of life- how to make sure people understand what they are supposed to do and when, and what to do if they fail to live up to those expectations.  Contracts, in particular, are about balancing the needs of the parties and coming to an agreement both can live with.  While one party might have greater bargaining power than the other (think of banks and mortgages, versus prospective home buyers), the ultimate result is that if you want to do business, you have to agree to abide by the rules you both set forth.  Each party negotiates terms they think they can live with, and each party risks something in the exchange.  It’s a balance of risk and benefit, and most often, if you understand the risk and understand your responsibilities, you can pretty much do whatever you want.

Whether or not to sign an agreement or agree to do business involves anticipating and trying to mitigate risk.  Banks, for example, offer you services, but they charge you money for it, and penalize you with higher fees when you screw up- think of bounced check fees, for example.  In more day to day contracts, when you buy something, you expect that it will work, and if not, that you will be able to return the item and get your money back, or have them repair/replace the item as needed.  It’s about anticipating and meeting expectations between people, at its most basic form.  The risk comes in by figuring out how much is on the table, and how much any one party has to gain or lose at the other’s expense.  In the best agreements, everyone benefits in the end.  In the worst cases, contracts can feel like indentured servitude, where one person is shackled to obligations they made that end up being onerous and difficult.  Breaking these agreements can seem like a good idea, where you simply pay money or penalties to try to make people whole afterwards, but like any other broken promise,  it often leaves hard feelings and broken relationships.

When I look at a business plan, I try to look at it from both sides.  What’s reasonable?  Are people setting themselves up for problems?  Are they over-promising on what they can reasonably deliver?  Does everyone understand the exchange? How does this stack up to what else is out there?  How are customers going to feel about the offering?  Are you making a difference?  Is the exchange of value fair and reasonable?  Are both parties better off after a transaction than before?  Can we anticipate potential problems and head them off in advance by the way we construct the business or the agreements?  This balancing of the wants and needs of both sides is the risk analysis portion of things.  If everyone wins, it’s a great agreement.  If only one side is winning, there may be a short term benefit, but there’s unlikely to be any returning business or further transactions.  Couple this with the fact that your reputation is not what you say it is but what Google says it is, and you quickly understand that short term gains may lead to long term problems if your reputation is important in business, and I’d reckon it’s important to you regardless of what business you’re in.

In the end, the more money, the more things each side has to do, the more details an agreement involves, the more opportunities there are for things to get complicated and need more formal agreements.  There needs to be a thinking and planning of how the plan is going to be carried out, to make sure you can meet all obligations.  People got into problems with mortgages because they believed that if the bank said they could have a ridiculously large loan, they should go for the maximum loan they could get.  The bank wouldn’t loan them the money if they couldn’t afford it, right?  Well, the bank i concerned about whether you can pay them- it’s not so concerned about whether you eat ramen noodles or filet mignon, whether you can afford to drive your car or go on vacations.  That’s why making sure you know how much you are willing to spend is much more important than what banks or others are willing to let you spend.  Looking to others (especially those who want your money) to be your fail-safe for reasonableness isn’t what I’d recommend.

Many people hate it when I walk them through risk analysis- it’s a drag to contemplate the worst case scenario when you are in the heady days of contemplating a home, a new car, a business venture, or even marriage.  From my point of view, however, if you know the risks, and you know your responsibilities and what’s in your control, you can do pretty much anything you want to.  Go for it.  Take the risk.  Just know where those potholes are in advance, and then you can easily maneuver around them.  You’ve already looked down the road and said- yeah, I can do that- no problem.  If the unexpected happens, or if someone fails to live up to what they said they would, you have a plan in place for what to do then as well.

Risk analysis is all about advanced planning and having a few contingencies up your sleeve, just in case.  While any good battle plan never survives contact with the enemy- meaning the other side always gets a vote as well to what happens, and you’re going to have to improv along the way- the plan is that roadmap to fall back on- that mission statement, that clarification of goals that you can rely on to make sure you reach the endpoint, even when the path itself changes.  Don’t let evaluating and considering risk destroy your plans or your goals, but realize that it’s necessary for the implementation and making sure all the steps are in place to make your dreams a reality.  Without the plan, your dreams will remain just that- lovely thoughts about “What if…”  With a plan, you know exactly how to get there.