How avoiding risk amplifies it

(and what smart branding can do to help eliminate it)

Without risk there is no reward. Often quoted, yet rarely taken to heart, such sentiments echo throughout corporate boardrooms, being spouted right now by a team deliberating between beige and taupe for the housing on a new line of air-fresheners. The vast majority of companies grossly misunderstand the concept of risk, believing that resisting change avoids it, while exploring the unproven takes on far too much of it. The dogma of not fixing what ‘aint broke permeates within our culture so deeply, that describing a company as ‘innovative’ has been softened to the point of including those who are barely meeting the demands of their customers.

In retrospect, which really exemplified taking a risk? Developing something new, or sticking with something old?

The corporate world is deeply ingrained within a broken system of gentle product evolution. Business revolves around the yearly freshening of an existing object or service rather than around trying to create new solutions to old problems. Large companies utilize extensive market research and consumer testing to provide exhaustive data to support what everyone already knows, or at most, divine whether existing customers prefer the same thing they already own in blue or green. The desire to create new ideas that fundamentally solve problems has been lost by the great majority of businesses, who believe that risks like these are simply not worth taking.

This opinion is, of course, bolstered by the one industry that was not beyond taking on substantial amounts of risk over the past few decades, however I’m not talking about the kind of risk incurred when loaning a 25 year old making $37k a year $1.2 million for a house in Orange County, or the type of risk incurred when blindly investing billions on the promise of fantastic returns. Rather I’m talking about the type of risk a company takes on when making the decision to add or remove products, begin a massive ad campaign, or establish itself as a forward thinking leader within it’s market. I am talking about calculated risk.

I would argue that the concept underpinning the fear of risk is inherently backwards, and that not taking on what is commonly considered ‘risk’ is the riskiest move of all. Risk is not synonymous with danger, rather it is a concept assigned to the unproven. The quest to scientifically predict what is essentially an emotionally driven public reaction has resulted in a stalemate where companies find themselves between a rock and a hard place; between a market that is constantly pushing them forward, and an analytical nature that prevents them from being the first to take the leap on their own.

Those that wait to be pushed become entrenched within their own product lines and marketing tactics, and are unable to adapt to changing marketing conditions. Over time they begin to lack the brand support to launch the type of innovative ideas necessary to emerge as a market leader. CEOs must disenthrall themselves with where they as a company have already been and embrace where they must go.

Of course in an era of intense investor scrutiny, such actions are easier said than done. Financial markets, in general, are fond of speeches about long-term vision as long as they are accompanied by short-term profits. Many businesses have had their grandiose plans for innovative market dominance dashed by 2% lower than expected profits in the month of April. Such is the backlash about minor market corrections that immediate, and short-term action is required to produce above average results the following month in order to preserve the jobs of those in charge. Under such immense financial pressure to perform, it is often easier to be predictably mediocre than to be unpredictable at all.

And while predictably mediocre may not have been so easy to achieve over the past two years, the risk aversion mentality is not symptomatic of a faltering economy. Businesses are just as likely to rest on their laurels during a bubble as tighten their belts and hunker down after a burst. It is usually only when a company is in trouble that they finally begin to understand how taking risks might have helped them to avoid their faltering situation.

For example, the US auto manufacturers have spent 30+ years avoiding risk by continuing to produce products that fell decades behind their competition in terms of design, finish, engineering, safety, and reliability. They survived solely on a ‘Buy American’ attitude and an aging population of loyal customers, neither of which was able to sustain them as they became further and further out of touch with the desires of the market. It is only now, when they lack the time and capital to do something about it, that they are beginning to understand that taking risks is not just how you stay on top of your competition, but in some aspects simply keep pace with them.

One of the reasons we see the desire to innovate only in times of desperate need is that for unprepared companies, it tends to alter business models. Brands that historically do not innovate cannot begin doing so without dramatically adjusting the way they are perceived by their customers. When the status quo is changed, it is often seen as a desperate maneuver, and customers flock to what they consider to be more stable companies or brands. Think pizza places selling tacos or gas stations selling DVDs.

Risk adoption must be made a part of a business’s culture BEFORE they have no other choice. And the only way to prepare companies for the uncertainty of risk taking is in the way that we brand them. We believe in branding companies around an idea that embodies how they would like their customers to feel rather than build a brand around a product or group of products. This strategy essentially gives a business carte-blanche when it comes to capitalizing on new opportunities as long as they don’t stray too far from the core of their brand strategy. A store that prides itself on selling nails simply cannot support selling screws no matter how much demand there seems to be, whereas a store built upon the idea of providing customers with the best fastener for the job can sell nails, screws, bolts, tape, glue and anything else they want without stretching their brand too thin.

Now is the time when companies should be taking a look at their brands and asking themselves if they are prepared to take on the risk necessary to emerge from a recessed economy as profitable. As cash flow is returning to the economy, the conditions are becoming more and more right for businesses to start considering brand migration strategies. By rapidly evolving from a brand which values their products to a brand that values their customers, modern companies can position themselves as brands whose clientele expects them to take risks, and rewards them when they do.

Of course there is still some risk involved in taking risks. A frozen food company exploring the seafood-flavored breakfast pancake market may not find success no matter how their brand is positioned.

Crabcakes?

Actually it could work if I could find someone who makes tartar sauce syrup...

Successful innovation and risk taking requires an intelligent design and development process that establishes a need and creates an exciting new method for satisfying it. Consumers respond to companies that they believe have their best interests in mind, and a brand that is continuously developing and releasing new ideas will strike a chord with them. With this type of relationship, successes become loudly congratulated and missteps become easily forgiven, a situation that takes much of the risk out of risk taking.

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