Tweet

Lesson #1: Plan for the Worst to Reduce the Risk of Risk

Article Overview: Entrepreneurs, by definition, are risk-takers, people willing to strike out on their own in order to seize an opportunity and make a profit. But, for Li Ka-shing, the richest man of Chinese descent, risk should not be a part of the equation. Li is a self-proclaimed risk-averse entrepreneur and goes to any and all lengths to reduce the risks inherent in his actions. It was in planning for the worst case scenario and learning to expect the unexpected that Li managed to succeed where others before him had not.

Lesson #1: Plan for the Worst to Reduce the Risk of Risk

Entrepreneurs, by definition, are risk-takers, people willing to strike out on their own in order to seize an opportunity and make a profit. But, for Li Ka-shing, the richest man of Chinese descent, risk should not be a part of the equation. Li is a self-proclaimed risk-averse entrepreneur and goes to any and all lengths to reduce the risks inherent in his actions. It was in planning for the worst case scenario and learning to expect the unexpected that Li managed to succeed where others before him had not.

Li’s risk-averse nature and the value he places on a dollar extend back into his childhood. When Li was growing up, he knew nothing of the billionaire lifestyle and comforts that he does today. “Despite my achievements, I can still remember poverty,” he says. “I told my children and grandchildren that ‘The fruit that you eat will never taste as beautiful as the fruit that I ate during the turmoil of war. You will never cherish it as much as I do.’” Li grew up in a household that struggled to make ends meet, particularly after the death of his father.

It was during the three year Japanese occupation of Hong Kong that Li began working to support his family. Because his father needed expensive treatment for his tuberculosis, Li sent home 90 percent of his salary during that time. “I am very prudent financially because of those hard times I went through,” he says. “I spent nothing. I had a haircut every three months. I shaved my head like a monk.” Li even refrained from things like seeing a movie, saying, “I needed to save every penny…I needed to be strong, and needed to find some way to secure a future.”

It might have been during his childhood that he learned the value and importance of a dollar, but it was a lesson Li would keep with him for the rest of his life. When he first founded his company, Li had little startup capital and was thus forced to be very careful with his money. “That’s why I am always conservative,” he says. “I never forget to maintain stability while advancing, and I never forget to advance while maintaining stability.”

In contrast to many of his peers, Li’s willingness to take chances with his money did not increase in proportion to his wealth. To this day, he has never taken on any personal debt. He is also extremely proud of his company’s financial record. Throughout the past fifty years, Hong Kong, and the rest of the world along with it have experienced numerous changes, many of which adversely affected Li’s interests. “But how many times have you heard that Cheung Kong’s finances were in trouble over the last fifty years?” he asks. “Never; the reason is, we are always prepared for the worst. That is my policy.”

When Cheung Kong went public in 1972, it had almost no debt. Even where it did have to borrow from a bank, Li notes it would have alternative arrangements, “such as buying government bonds equivalent to the bank loan amount, to ensure that we can readily cash out at anytime.” That is just one example of the extent to which Li will go to minimize his financial risk. Even where he is invited to be a partner in a venture, he will only take a 15-20 per cent minority stake in the project.

Li wears a $50 Seiko watch – which is always set twenty minutes ahead – drives a modest car, and has lived in the same house for over twenty years. His personal no-frills, prudent lifestyle is reflective of what Li calls his “principal policy”: never take financial risk.

Related Articles
  MANAGING RISK
  Risk Assessment & Analysis Techniques
  SME's - a link between funding and a compliance model
  How to manage risk (but don’t stifle innovation)
  Helping SMEs meet the requirements of formal financing - Increasing SME Access to Finance: A Four Pronged Approach

Article Tags: billionaire, chinese descent, entrepreneur, grandchildren, haircut, household, japanese occupation of hong kong, lesson 1, li ka shing, lifestyle, monk, poverty, richest man, risk takers, salary, startup capital, three months, tuberculosis, turmoil, worst case scenario



Related Forum Posts
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!
Show the Benefits - Offer a free test drive of the Product or Service with a Money Back Guarantee - Take the Risk out. This will help them make the decision but you have to work with them to realize it by explicitly state the benefits they are receiving.
Unsecure Neighbourhood - Instead of knocking on their door why don't you leave a letter in their Mailbox in a hand written envelope. You can advise them via the letter that their internet connection is unsecured and write how an unsecured internet connection can affect them. Note: this is time consuming but I'm assuming that your willing to spend the time to drive neighbourhoods to find your target market. People on this forum may be able to assist you in determining how to make more use of your time. Maybe you can post flyers in the neighbourhood stating "This Neighbourhood is Unsecure!" "Your Internet connections may be at Risk" Call me now for a free assessment of your Wireless Connection at 509-xxx-xxx The free assessment is critical in getting strangers to contact you. I'm sure you'd be able to come up with something more creative and I hope you use this as a launch pad for new ideas. GoodLuck and tell us what you plan on using to attract new clients and the results of your effort - we like helping people that come back with their reuslts (good or not so good).
Re: What is your worst / best month? - Best: October, November, April Worst: January, February, July
Re: What is your worst / best month? - Best = January, February and March. Worst = April (tac season) July and August (vacations).


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Are You Too Good for Your Job?

Civility in the Workplace---Is it Decreasing?

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.