Robert Berris is EVP and Managing Director of Three Five Two where he leads company strategy and day-to-day operations.
The following three-part series is designed to help you feel brave to pursue your next big thing. Notice, I said feel. Here’s the secret no one in business wants to tell you: creating a new product and/or pioneering a new venture is more about feeling brave than it is knowing your idea will work. Because let’s call it like it is – no one can know if a new idea marketed to a new customer base in an entirely new market is going to succeed.
Here are some of the secrets no one wants to acknowledge in business (Startup, VC and Enterprise alike):
- To achieve “big” growth, you have to accept that you’ll never have enough information to be sure that your idea will work.
- Some of the best created strategies that are supported by overwhelming evidence will fail.
- New products and businesses that were based on little evidence have succeeded without any human-centered design or empathy for people.
- Most startups fail (>90%).
- Most new businesses fail within the first 18 months.
- Most corporate innovation fails.
Robert, what the hell are we supposed to do with this? Am I supposed to be energized? Are you trying to discourage me? This is a three part series to do what?
This first article is going to deal with Risk vs. Opportunity. The next article will discuss how to thrive in uncertainty. And in our third article, I’m going to share with you how to begin transacting with your customers in as little as 60 days.
Step 1: Make Braver Decisions
Assessing how you and your team think about Risk vs. Opportunity is key. First, a few definitions to align us:
- Business risk is the exposure a company or organization has to factor(s) that will lower its profits or lead it to fail. Anything that threatens a company’s ability to achieve its financial goals is considered a business risk.
- A business opportunity, in the simplest terms, is a packaged business investment that allows the owner or key stakeholder to begin a business (let’s assume this investment is based on some evidence to suggest there is a large enough market of people who will purchase the goods and services in your early-stage business).
If we now are aligned to and understand the tension between a business opportunity and risk, I’d ask you this: How well do you understand how your peers and company think about this tension? How well do you understand how this tension affects your business model?
Step 2: Understand and Define the Tension
Let’s consider the real tension we’re grappling with. A business risk for a venture capitalist is different than it is for a head of new ventures inside an enterprise, which is different than it is for a corporate strategist, which is also different than it is for a product manager exploring new features, etc.
The risks for these individuals vary from risking political capital inside of a large corporation to a wide portfolio of investments that assume less than 10% will successfully pay off.
If you’re like any of the other leaders I mentioned above, that happen to reside inside of a company that wants to explore “the new”, your company is generally designed to avoid risk. It wants employees to over-analyze decisions to prevent loss, has a chain of command to approve decisions and manage budget expenditures, an annual budget approval process predicting where you might spend dollars and what you hope to achieve through it… and the business model depends on you following those rules, to achieve success. That success is largely predicated on revenue, margin, net profit, while achieving goals supporting your mission and vision.
Because your cost of goods cannot exceed your revenue stream with a healthy & mature business model, in order to find the same success (increase revenue, drive profits, retain customers, attract new ones) you must follow the design of the original business model over and over again.
Step 3: Stop Caring About the Eventual Failure of Your Idea
The development of a new product, service or business venture depends on your ability to assess the model of risk vs. opportunity differently. It is critical you shed all of the mental organizational constraints present in your company and only focus on what happens if you don’t do it, rather than if you do.
Step 4: Focus On, “But What if We Don’t”
If you only focus on what if we do, you will inevitably come to “a” conclusion that this idea will fail. Sure, there’s some scenarios where you might be able to find a path to success, but here’s what no one wants to say, it’s incredibly likely you will fail.
Every business case that has ever been written is designed to structure an argument about why this opportunity is worth pursuing, based on a defined investment size of time, money and resources, to achieve a certain potential return on investment, that’s completely based in a guess.
That guess might be an educated guess. It may have more research and evidence to support why it could work, but it’s still a guess, it’s still a hypothesis. Another way to say it: it’s a strategy. And strategies depend on viewing a future state where possibility thrives.We tend to feel like strategies are certain, precise, and have confidence about where we’re marching towards. It’s all still a hypothesis.
*Secret Step 4.1: Assessing Your Company’s Risk Tolerance
Risk Tolerance is intentionally and unintentionally designed within three areas of your company: (1) the business model, (2) your executive team who passes it on like scripture to their employees, and (3) the inherited personal tolerances of every employees predecessors’, especially at the c-suite. As an aside:I would suspect, based on my experience with our clients, that much of the risk tolerance is inherited as opposed to explicitly stated.
Therefore, to assess risk tolerance is to explicitly discuss it and define it by documenting how risk is viewed by your various stakeholders, ultimately laddering up to the executive team who may be providing you permission and resources to pursue something “risky”. In short, the implicit mental model people use in your company needs to become an explicit definition, with enough fidelity to produce an intelligence decision, not to simply document a poor mental model which will never allow for “the new” in pursuit of substantial growth.
As early as 2013, Harvard Business Review discusses this in-depth and unpacks why you could have a fundamentally correct model that is wrong for your company and/or team. So, while this is an incredibly complex topic to solve within the next few years, I would recommend using the following framing to help define the tolerance for risk within your peer group or company:
- Who might benefit from the pursuit of this initiative?
- What is the potential benefit from this problem we might solve?
- How does the solution we create benefit the company even if the idea fails?
- When would we know if this initiative worked and how long might it take to capture its long-term value; and finally?
- Why is this initiative important to our company? Why does it support our strategic vision & goals? Why is it critical for us to do this now?
Answering these questions provides healthy constraints for your team to review and to start having the right conversations.
Step 5: Lie to yourself and become an evangelist to make others believe.
Every business case is dependent on a future prediction. While technology is getting closer to predicting future scenarios, as an optimist, I’d like to believe the future isn’t yet written. However, this article is all about being comfortable with predicting some future state but structuring how we think about uncertainty to pursue the right business opportunities.
When you assess risk vs. opportunity, what you’re really doing is designing an argument and creating a story about something you believe will happen in the future. A something that if you don’t do, you’ll never know how big of a success you could have had. You have to make that story so attractive and yet “reasonable” in your ask of resources, that people have no choice but to fund you. They are investing in you, period.
So my advice to you is really: you have to be more than a catalyst for possibilities. You also have to be a stimulant for others within your organization. While you don’t have to bring a crowd of Utah State basketball supporters to get others excited (although, that might just do it), you absolutely have to be at the front of the pack. You’re trying to make others feel brave along the way. And guess what? If you’re not all-in, how can you expect others to be? Building up the brave (yours and others) is your best chance to succeed.
So then, what the heck am I solving for? Why is pursuing big growth so hard?
Because you’re attempting to make a decision and, at the same time, convince others to make that same decision. The real problem you’re solving for is comfort in the face of navigating uncertainty.
So are you going to teach me how to do this, right?
Not in this article. Read on to the next article, Structuring Uncertainty. By the end of that article, you’ll understand how to dimensionalize your business case and have the components for a compelling story.