Tag Archives | risk

A Kiteboarder’s Guide to Embracing Business Uncertainty

Amanda at Tybee Island, Oct. 2017

Amanda at Tybee Island, Oct. 2017

If it’s a weekend and the forecast shows potential for good wind, my husband and I head to the beach. We aren’t always rewarded with enough wind for great kiteboarding, but if there is wind, we’re often the only ones there, set up and ready to take advantage of it.

Meanwhile, others who have waited for the wind to materialize before jumping in the car often arrive just as the wind is dying.

Just like the wind, most everything in business is subject to change, often when you least expect it. And change brings uncertainty, which often manifests as doubt, delay and paralysis. We don’t know what’s going to happen, so we wait.  According to psychologists, we humans are hardwired to dislike uncertainty; it’s in our DNA. In a recent study, researchers discovered that uncertainty is more stressful to humans than knowing that something bad is definitely going to happen.

But what if, instead of being a negative, uncertainty in business was a positive? In my experience, this is often the case. Why? Because uncertainty creates opportunities to pull ahead of the competition and stay ahead. And businesses that are willing to take on more risk and operate in uncertain environments can win a competitive advantage over those that are not. They’re on the beach and ready when the wind picks up.

Uncertainty creates opportunities to pull ahead of the competition and stay ahead. Click To Tweet

Don’t let uncertainty put the brakes on your business’s growth. Here are six ways in which fast and unpredictable changes in your business environment can create opportunities to gain competitive advantage.

1. Marketplace changes create new opportunities for us to surge ahead of competitors. When the world is certain, even mediocre companies can perform adequately. The world plods along much as it always has. Companies serve known customers, providing for well-understood, long-standing needs. The trouble is, in highly certain times, when nothing much is changing, companies tend to become more and more alike. In search of growth, they go after one another’s customers, or drop price to gain market share (predictable winds lead to crowded beaches). Margins get squeezed. It’s okay for everyone, but great for no one.

Uncertain business environments, on the other hand, create the potential for companies to break out of the pack. When something unexpected happens—a new technology, a new competitor, a new customer need, or a change in governmental policy or regulations—it gives alert and prepared companies a chance to speed ahead if they respond in a faster, smarter, and more-adaptive way to make the most of the new situation.

Uncertain business environments create the potential for companies to break out of the pack. Click To Tweet

2. The faster and more surprising the change, the greater the advantage for companies that respond quickly. Company leaders who welcome marketplace changes and think, “How can I exploit this, before my competitors do?” rather than “Let’s hunker down to watch, and hope this goes away,” are able to take fast action, and can make the best of even difficult situations. Managing well in uncertain environments, to minimize risk while taking advantage of changes that occur in the business environment, is an uncommon capability that can be a tremendous source of competitive advantage.

A business unit president I work with was concerned when she noticed that sales in the Midwest region had plummeted in the space of just two months. After a series of conference calls with salespeople in the region, we discovered the reason: A competitor had begun offering same-day delivery and directly targeting all of my client’s best customers. We acted fast, identifying a set of products that my client could reliably deliver in a two-hour timeframe, using company-owned delivery vehicles. The competitor, who was using third-party logistics firms for delivery, couldn’t match this offer, and sales rebounded, surpassing even their former level.

3. We can take simple steps to be more prepared for the unexpected. Anticipating a wide range of possible future scenarios, and having a frank discussion with other leaders in your firm about what you should do to prepare for the possibilities, is essential to preparing for the unexpected. Of course, we can’t predict the future, but through this type of discussion, it often dawns on us that there are a few “no-brainer” steps we can take to be ready for what might happen (such as packing the car with kite gear if there’s over 50% chance of wind). For example, fast-food restaurants that specialize in chicken likely have a plan for how to respond quickly with substitute sources of protein if a fast-spreading virus decimates chicken supplies. And, scenario-planning exercises can help us to become more deliberate in watching for the early warning signals of future market disruption.

4. The more we proactively change the business environment, the greater control we have over business outcomes and competitive advantage. Martial arts experts know that if you want to be faster than someone with fast reactions, you have to create the situation. Consider how you can shape your business environment to pre-empt an effective competitive response.

Consider how you can shape your business environment to pre-empt an effective competitive response. Click To Tweet

One company I know was superb at helping to shape future regulations and industry technical standards—to its own advantage. Another was adept at developing new distribution channels that the competition hadn’t considered, and would have a hard time penetrating quickly. Both companies kept their strategies under wraps during several months of negotiation and preparation with other parties. As a result, other players were caught by surprise, and were slow and relatively ineffective at responding.

5.  We can create new profit streams by reducing the risk and uncertainty for our customers, especially in volatile markets. If your company is good at spotting the opportunities inherent to uncertain business environments, and at managing amidst uncertainty, consider how you can create new sources of growth and profit by reducing the risk of your customers, or even your suppliers. Insurance companies are masters at this, but every company should keep their eyes open for opportunities to do so.

A tire company I know reduced uncertainty for its suppliers by committing to “take or pay” for certain volumes of raw materials each month. In return for this concession, suppliers gave the company lower prices. Even more important, however, was the fact that by reducing supplier risk, the tire company ensured that suppliers would be economically healthy and able to ramp up supplies quickly when the market demanded it. Removing risk for suppliers created a greater ability for the tire company to thrive in an uncertain market.

6. Customer and market data, combined with artificial intelligence, can dramatically increase our ability to make fast decisions amid risk and uncertainty. Artificial intelligence and data are driving innovations across agriculture, automotive, energy, retail, weather, sports, and nearly every other arena. In many cases, these innovations have transformed the customer experience and brought tremendous new efficiency and value (an example is ikitesurf, an app devoted to collecting data from kiteboarders, and helping them to know when the wind, weather and tides will be ideal). These innovations also have the potential to reduce risk while increasing speed.

Kabbage, started in 2009 and now valued at over $1 billion, specializes in making loans of up to $100,000 to small businesses. The small business market is inherently risky—only about half of small businesses survive their first five years. Small businesses that fail often default on their loans in the process. Kabbage spotted this uncertainty and decided to exploit it. The company built a system to allow small businesses to qualify for loans and receive the funds in minutes—if the companies give Kabbage access to online data that provides a window into the health of their business, and their capacity to repay the loan. This includes UPS data on shipments, eBay and Amazon order data, and even social media data. If the loan applicant has a healthy stream of orders coming in, Kabbage is happy to provide a loan. Kabbage solved a big problem in small business lending by reducing risk and uncertainty, and providing small business with extremely fast access to funding.

In summary, people are hardwired to fear uncertainty, but embracing uncertainty is key to growth and innovation.  When you deal with uncertainty in a rational and fact-based way, uncertainty can work for, rather than against, you.  Having the right risk mentality and moving quickly in uncertain business environments can create a lasting advantage over competitors that are slower to respond. So next time you face a market upheaval, consider how a smart, fast response can create new opportunities for your company.

Embracing uncertainty is key to growth and innovation. Click To Tweet

Change the Game

Change The Game

I recently worked with a large, successful company whose growth had slowed. They needed new ideas—and not just any ideas, but big ideas: new growth trajectories that would generate at least a billion dollars in revenue. Entirely new categories.

They were already one of the largest players in their industry, so taking market share was not easy for them. They needed to build new markets—creating and serving customer needs that had never before existed.

The problem was the ideas just weren’t flowing from the team. Continue Reading →

Think Like an Explorer

Businessman Walking Outdoors

When I was sixteen, I went on a 2-week horseback trip in the Bighorn mountains of Wyoming. Each morning, we were given the coordinates of the location where we would camp that night, then turned loose with a map and compass. It was satisfying to arrive at the destination each night, after navigating our way through the mountains on our own.

Heading a new strategic direction—entering a new market, innovating a new product line, or changing the way we go to market—can feel like heading out into the wilderness. If we think like an explorer would, however, we can find our way to new sources of profit and growth.

Here are four points to keep in mind when navigating new strategic territory:

Continue Reading →

Learning from Elon Musk: Manage uncertainty by avoiding these three mistakes

Falcon 9 DSCOVR Launch

Falcon 9 DSCOVR Launch

Not long ago, I stood on a pier near Cape Canaveral, Florida and watched a SpaceX rocket launch.

People were wearing SpaceX t-shirts and talking excitedly. SpaceX has brought the thrill back into space exploration.

Founder Elon Musk figured that by developing a way to reuse rockets, just like airplanes, he could reduce the cost of travel to space by a factor of a hundred.

He’s well on his way to achieving that. The company created the first commercial spacecraft in history to shuttle cargo to and from the International Space Station, and has already cut the cost of launching into space to less than a tenth of its prior level.

His ultimate goal, however, is to colonize Mars, making human life inter-planetary.

How’s that for a bold vision statement?

Ten minutes after we watched the rocket launch that day, SpaceX attempted a precision landing of the spent first stage onto an unanchored ocean platform.

Though the SpaceX team judged the odds of success of landing on the platform as “50% at best,” they viewed the attempt as part of a learning journey—one step in a series of tests that would ultimately result in a fully reusable first stage.

No matter what business or industry you are in, risks exist. Competitors enter the market, customer tastes change, new technologies appear, and market prices can take dramatic and damaging swings.

The future is never certain; but in some industries—like space exploration—it is profoundly uncertain.

Good strategy nearly always involves a bet, so as leaders, we need to become comfortable making decisions when we have less information than we’d like, and when the future is highly unpredictable.

Musk has avoided three mistakes that I’ve observed other companies make in managing risk and uncertainty:

Mistake number 1: Taking no action. 

Executives often fail to make a strategic move because they are uncomfortable with the risks or can’t agree on whether it’s worth the potential reward. When the rest of the smartphone industry moved to touchscreen technology, BlackBerry (then called RIM) stuck with keyboards for far too long. BlackBerry’s market share plummeted as a result of this and other missteps, and the company found itself struggling to survive.

Just like SpaceX has designed a series of tests to learn how to reuse rockets, to bring the cost of space travel down, figure out what action you can take today to begin your learning journey.

In uncertain environments, place several small bets, then adjust your strategy based on the outcomes of those bets. For example, test several different versions of a new product or new advertising message. Watch how customers respond, then eliminate the unsuccessful versions while  building upon the successful versions.

Mistake number 2: Engaging in “me-tooism.”

This happens when a company takes the “safe” route by waiting until a competitor has succeeded with a new strategic choice, then follows the competitor’s moves. Almost every industry has a few companies that subscribe to this fast-follower approach. They avoid difficult strategic decisions, but find themselves with an undifferentiated offering and mediocre results. For example, auction websites auction.com, eBid.net, ePier, and others like them have not attained nearly the level of market penetration nor success as eBay—the company that pioneered online auctions.

Break out of the horse race by figuring out what you can do differently (and smarter) than the competition.

Mistake number 3: Assuming everything will go right.

Companies make a bold move, but fail to adequately identify and manage the inherent risks. They want to invest and grow, so their financial projections assume that many things will go right. I see this when companies enter new markets but fail to manage the risks, such as customer and channel acceptance. Hewlett-Packard’s failed introduction of the TouchPad tablet in 2011—a product it pulled only forty-nine days after launching it—provides an apt example.

Though one of the most innovative and courageous leaders of our time, Musk retains a grounded sense of what’s doable.

In David S. Kidder’s book The Startup PlaybookMusk was quoted as saying, “Wishful thinking is one of the most profound human failings, and the major reason why people adhere so strongly to wrong ideas. This doesn’t mean that you can’t be optimistic. You simply have to be realistic as well,”

To be realistic, you must assess your odds of success, then identify and address the risks head-on.

Avoid these three costly mistakes—paralysis, me-tooism, and wishful thinking—and you can manage successfully even in the most uncertain of business environments.