Risk Aversion Equals Value Aversion
When consulting a company and this always means working with the people inside the company, one thing is quite often pretty obvious: the massive gap of the willingness to take risks between founders/CEOs and employees. Even if the founders have a “get sh*t done, get it out, let’s see” mindset, this way of thinking is all too often missing from employees, on any level. The grade of risk-aversion of employees is a significant issue and regularly stifles output, innovation, and revenue of the company.
Risk is Value
There is no in-company-risk. The organization itself does not have value. Value for the business only gets created when the business interacts with the outside world. Inside a company, there is no risk, yes, there might be conflicts, but as long as they do not concern the outside world, they are just petty fights. But interaction with the outside world is always inherently risky, as actions, i.e., launching a product, leads to reaction. If the response does not create considerable more value than the cost for the business or even leads to negative value (loss), then the action did not pay off. Said that risk and value are the same thing. Without risk, there is no value. So risk-averse employees are value-averse employees and, therefore, an organizational challenge.
Imagined Risks and Unseen Risks
Employees, who are deep into the organization flow, also lose sight of the real risk. The biggest risk for a business is to do nothing. The value of a product deteriorates over time, due to competition, due to market innovation, due to mindshare, due to the fact that the world moves on.
The risk of doing nothing is not seen by many people as they have a limited view of taking action. Their inner model is, no action (or less action) equals no risk (or less) risk. But the risk of not taking action culminates fast. I would even say exponential (as the inaction of one employee leads to the inaction of more employees, whereby its seen by the competition of a bigger opportunity the longer a company is stalling).
But the imagined risk of taking action is all too clear in our imagination. Adults are trained to know that actions lead to reactions, so it’s all too easy for us to imagine the risks of taking action. Compared to that, we suck at visualizing the risk of doing nothing. We are not primed to see the risk of not taking risks.
Skin in the game only half the solution
One standard solution is to give employees “skin in the game”. Shares, bonuses, goal-focused pay rises. But these tackle only one small part of the challenge. They focus on value. But risk-aversion still creeps in, ’cause as soon as we make some progress, get a “positive high”, we aim to keep this “high”, so making risk-averse bets again.
Job safety, Visualize Inaction, Hedge
So how do we best encourage employees to keep taking risks, to keep striving for new value, to focus on future risky encounters of the business with the outside world?
Job safety: Don’t fire people for taking risks. Make sure that they know that they will not get fired for taking risks. Don’t confuse this with lying or being stupid. As long as all actions were clearly communicated, pot. upsides and downsides discussed and then put into action, all is good. Yes, there will always be downsides that were unknown, and also upsides that were unknown. That’s a fact of the outside world. But taking that risk a.k.a. aiming to create value is never a reason to fire someone, promote them. Fast.
Visualize Inaction: Inaction is an action in itself. Citing Paul Watzlawik:
“We can not, not communicate.”
- Paul Watzlawik.
For businesses:
“You can not, not take action.”
Go dashboard first on all quantifiable delivery metrics: Time since last product release. Time since the previous communication. Predicted growth vs. real growth. Mark weeks without actions, releases,… . Additional measure and visualize the gap of the expected time to action and actual action data. It’s a great way to measure the inherent company inertia, which is a good indicator of company risk-aversion. It’s not always the fact that a company is just bad in estimating delivery dates, quite often the company is just slow. And yes, I firmly believe companies are slow because the players do not want to be fast, as they do not want to be fast, as they do not want to take risks.
Hedge: Taking risks (a.k.a. creating value) does not mean to be stupid. If the founders/CEOs do not want to constantly bet the whole farm, create a second product, a second web property, a second app, a second shop, … and take major all-in-risk there and slightly smaller risk on the money maker. Said that most riks are not “bet the whole farm” anyway and hedging, especially product hedging, is not necessary and just makes you slow.
Reposition Risk
Risk is value. Risk-aversion is value-aversion.
Taking risks means creating value. No risk in not an option, as no value is not an option.
About the Author
Franz Enzenhofer changes the internet since 1998. Over his career he worked with startups, market leaders, startups then market leaders, market leaders that reinvented themselves as startups, state-owned companies, freelancers, concert halls, cities, political parties, betting companies, NGOs, economic chambers, TV stations, family-owned small businesses, Fintechs, old school banks, national and international newspapers and news agencies, media houses, media conglomerates, sport teams and more. He worked with organizations in the US, UK, D.A.CH, Ireland, India, Thailand, Peru, Colombia, Spain, Portugal, Poland, Netherlands, Italy, Germany, Switzerland, Croatia, Hungary, Bulgaria, Gibraltar, Sweden, Cyprus and more. He cares about systems growth.
fe /at/ f19n dot com
https://www.linkedin.com/in/franzenzenhofer
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