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In the investment world, taking risks during volatile periods can result in a windfall. During his 60 years at the helm of Berkshire Hathaway, Warren Buffett delivered compounded annual returns of nearly 20% — double what the S&P 500 achieved — guided by the rule “Be fearful when others are greedy and be greedy when others are fearful.”
But company leaders have been more hesitant to embrace this principle when it comes to corporate strategy. We assessed a sample of nearly 6,000 companies over the past 15 years, identifying times when their respective industries faced elevated uncertainty. Only 10% of companies chose to make big bets during such periods; the lion’s share instead decided to cut back on exposure. But our subset of risk-takers were rewarded: They achieved stronger growth and higher shareholder returns and did so without facing a greater chance of negative outcomes. These findings raise a question: What’s holding the majority of companies back from being bold?
The Benefits of Taking Risks Amid Uncertainty
We identified 10 high-uncertainty events that unfolded between 2010 and 2020 — major macroeconomic, geopolitical, technological, or societal disruptions that materially reduced predictability for a given sector. Crucially, we did not limit our analyses to crises and downturns but instead focused on events that heightened uncertainty and reshuffled an established playing field. Examples include the outbreak of COVID-19 and its effects on the travel and hospitality industry, the rollout of the Affordable Care Act and its impact on the health care space, and the emergence of mobile computing as the new consumer platform of choice in the IT sector.
We then assessed how boldly the nearly 6,000 companies in our sample that were affected by those events acted. We used M&A spending as a proxy, classifying companies as bold risk-takers if they at least doubled their deal spending during the high-uncertainty period (compared with their average for the prior five years).
We found that during these high-uncertainty events, 90% of the businesses pulled back, cutting M&A spending by about 25%, on average. However, a still-sizable minority of around 600 companies chose the opposite path: They (literally) doubled down, increasing M&A spending by 100% or more. During the three years following the high-uncertainty event, revenues among this group grew nearly twice as fast (6.9% versus 3.5% annually) as those of their cautious peers, while their total shareholder returns (TSRs) were 50% higher (3.6% versus 2.4% annually).
Perhaps more surprisingly, the downside of bold risk-taking was limited: We observed no greater number of these bold risk-takers slipping into negative TSR territory or even experiencing catastrophic failure, such as delisting, in this three-year period. Moreover, volatility in both returns and revenue growth was nearly unchanged compared with the rest of the sample in the three years following the bold bet.
What Common Risk-Taking Myths Hold Leaders Back?
In our conversations with company leaders, we have repeatedly heard a number of reasonable arguments for holding back — for example, that risk-taking works only when a company is entering an uncertain period with strong momentum or when a company has a cushion to fall back on. A deeper dive into our data reveals that three common myths do not hold up to scrutiny.
Myth 1: You can take risks only from a position of strength.
Making a bold bet in times of uncertainty is easier when financial performance is strong and leaders have the support of their organizations and investors. When business performance is weaker, many leaders hold back from even seeking approval for big bets. Consistent with this, our data shows that companies with strong momentum — outperforming their peers on TSR in the three years before a high-uncertainty event — were twice as likely to take big risks as companies that had been lagging their competition.
However, our analysis also showed that when companies with weak incoming momentum made bold bets, they performed exceptionally well on average, achieving 2.3 percentage points higher annual TSRs than companies that remained cautious. This illustrates that periods of high uncertainty can present a turnaround opportunity. After all, these uncertain moments can act as great equalizers, disrupting established industry structures and business models and creating an opening for struggling businesses to catch up or even leapfrog their competition.
For example, in 2019, the communication services industry faced rising uncertainty about the future of data privacy and security regulations in the wake of several high-profile scandals. During this period, 90% of the companies we studied in that sector reduced their M&A spending — by an average of nearly a fifth compared with their average spending over the previous five years.
One of the outliers was French advertising firm Publicis, which, at that time, was under growing pressure after delivering a -10% TSR over the previous three years. Still, it chose to make a bold bet by acquiring Epsilon, a U.S.-based data-marketing platform with vast consumer data sets and personalization capabilities. That risk paid off, accelerating the company’s push into data and technology and powering a performance turnaround: Publicis delivered a 17% annual TSR over the next three years.
Myth 2: You need a proven track record of risk-taking to pull it off.
A belief related to Myth 1 is that bold bets are best left to risk-takers who know how to deal with uncertainty. Companies without such experience, in contrast, often view turbulent times as the wrong moment to start taking bold risks.
Indeed, among businesses in our sample that were affected by more than one high-uncertainty event, those without prior risk-taking experience were less than half as likely as their experienced peers to double down on M&A activity. But our observations challenge such hesitation: First-time risk-takers delivered annual shareholder returns 6.3 percentage points higher over the three years following the high-uncertainty event than did peers that remained cautious.
For instance, as restaurants around the world closed during the COVID-19 pandemic, the industry faced pressing questions about when venues would reopen and how consumer behavior might shift. Faced with this uncertainty, 93% of players in the hospitality industry reduced deal spending during this time, by 39%, on average, compared with their spending over the previous five years.
Rather than waiting for the fog to lift, Create Restaurants, a holding company operating dozens of restaurant brands across Japan, decided to take its first big leap beyond its home market. It completed the acquisition of Il Fornaio, a chain of Italian restaurants concentrated on the West Coast of the United States, advancing its long-term goal of establishing a foothold in North America. The strategy paid off: In the three years following the acquisition, Create Restaurants outperformed the Japanese stock market’s returns by 2 percentage points annually.
Moreover, our analysis shows that experience in risk-taking can breed overconfidence and backfire. Among companies with a history of risk-taking, 33% fell into negative TSR after making another bold bet — a rate almost 10 percentage points higher than that of first-timers. Boldness should be encouraged when caution has previously prevailed, but leaders still need to guard against excess and overconfidence.
Myth 3: You can take risks only if you have a cushion to fall back on.
Bold bets are often perceived to be the domain of those with a built-in cushion, such as diversified companies, which can fall back on the resilience created by their broader product portfolios. Meanwhile, concentrated companies are often held back by the worry that a bold misstep could endanger their whole enterprise. Indeed, in our sample, diversified companies took bold risks 47% more often in times of high uncertainty than their more focused peers (which we defined as businesses whose largest segment makes up at least 70% of total operating income).
However, once again, the results do not bear out this belief: Focused companies that more than doubled M&A spending during high-uncertainty events achieved 10.2 percentage points higher annual TSRs in the following three years than focused peers that remained cautious.
HVAC distributor Watsco offers one example. As U.S. tariff hikes hit its industry in 2019, driving double-digit price increases and ambiguity about future demand, Watsco doubled down and launched an acquisition spree of HVAC distributors. By expanding its network while nearly 90% of its industry peers cut back on deal spending, Watsco strengthened its market position and captured the rebound as demand recovered. In the years that followed, it delivered a 15% annual TSR and cemented its position as the largest HVAC distributor in North America.
Our analysis also shows that focused companies that made bold moves did not face a higher failure rate than their diversified peers. Both had an 11% likelihood of delivering negative shareholder returns in the three years following the uncertainty period. This may be because bold bets by a diversified company can trigger ripple effects across the company’s portfolio; for example, an underperforming acquisition in one division may undermine investor confidence in the entire group. More-focused companies, on the other hand, can more easily rally conviction around a single big move and focus resources on its successful execution.
How You Can Execute Bold Bets
Having a license to make bold bets is one thing; executing them well is another, especially when elevated uncertainty may cloud decision-making. Our analysis of successful risk-takers shows that they do three things differently: They foster a risk-taking mindset, resist herd behavior, and are prepared to act the moment a shock creates opportunity. Here are a few practical ways leaders can put these principles into action.
Foster a risk-taking mindset. In uncertain times, the instinct is to retreat. In these contexts, companies require a conscious push toward a culture of courage that is nurtured by leadership. There are different ways to build a culture that rewards smart risk-taking. Ikea’s CEO directly encourages managers to take risks, by giving out cards that encourage individuals to “go bananas.” Each card is cosigned by the CEO, indicating that if a risk does not pay off, the manager who used the card is already pre-excused. The company’s chief HR officer used the card to sign off on funding a new staff scheduling system that increased the flexibility employees are afforded when choosing their working hours.
Other companies celebrate risk-takers in public forums. For example, Tata Group includes the Dare to Try prize in its annual awards ceremony. The award recognizes employees who pursued ambitious ideas that ultimately didn’t succeed but advanced the company’s spirit of innovation.
Aside from being integrated into the culture, risk-taking can also be encouraged through appropriate incentives: Successful risk-takers in our sample were paid twice as much in stock-based compensation as those who were unsuccessful in their bold bets.
Resist herd behavior. It is easy to get swept up in fear and follow the herd: When 90% of your peers are fearful, as in our sample, it is natural to remain cautious yourself. In such an environment, it becomes critically important to hold on to independent thinking.
One way to cultivate that behavior is to systematically develop counterarguments to prevailing beliefs. For example, some companies set up “red teams” tasked with challenging the assumptions underlying decision-making. Others make the opportunity cost of decisions visible: Bessemer Venture Partners has developed an anti-portfolio, documenting good investment opportunities that were not pursued. By publicly acknowledging what might have been, the firm draws attention to the often-unseen cost of inaction.
Another trick is to inject variation into the decision-making process to ensure that you are not locked into a mode of thinking based on emulating others. This can be accomplished by varying the heuristic (the indicator you use as a hurdle rate, for example), the mechanism (whether an analysis is conducted top-down versus bottom-up), the problem solver (making different people responsible for identifying opportunities), or even the step size of the search for new opportunities (for example, how close a new bet must be to the status quo of your portfolio).
Prepare to seize opportunities. Nobody knows when uncertainty may strike. But the most successful risk-takers are prepared to seize investment opportunities that may emerge amid uncertainty.
Some companies maintain a running list of opportunities they could pursue and the specific triggers that would make each one viable. Others build detailed playbooks and accountability frameworks that define exactly how they will act when opportunity emerges. A few even rehearse these responses through scenario exercises, ensuring that when disruption strikes, the organization can move with speed and confidence.
For example, Cisco tracks a list of up to 1,000 startups across multiple domains, maintaining regular contact with them through minor investments and commercial partnerships. This approach allows Cisco to build familiarity, test strategic fit, and move quickly when the right acquisition opportunity emerges. As uncertainty hit the IT industry in 2013, and PC sales experienced their first year-over-year decline ever (due to the rise of mobile computing), Cisco rapidly ramped up its acquisition activity, targeting multiple companies within its ecosystem.
In times of elevated uncertainty, taking risks may be a key to creating sustained advantage. As Warren Buffett has demonstrated, those willing to act decisively when others retreat often find outsize success.