The Dangers and Tremendous Upside of Consumer Demand
There is no doubt that risk is always present when making business decisions. Whether a small start-up, or a proven business tycoon, all businesses must calculate and manage risk for the betterment of their company.
How does a company take successful risks? Well, many rely on past data, make inferences, and set goals based on prior growth numbers, thus creating a calculated risk. Yet the world we live in today is extremely unpredictable. In such a world, the one thing that numbers do not have is human drive. A number cannot move itself up or down. However, the human mind can spark changes in business decisions, despite what the risk numbers are saying.
Just ask Netflix.
In an interview with Business Insider, Netflix CEO Reed Hastings admits, “Our hit ratio is way too high right now.” With shows such as Gilmore Girls, Friends, and Grey’s Anatomy, Netflix sees huge revenue in the form of television reboots that are now aired on their streaming platform rather than television. This is all good and well, but according to Hastings, the real, unseen, profit is in originals. Shows that are previously unknown and only aired on Netflix that catch like wildfire amongst viewers.
Reboots are safe since you can look at the data and see what kind of turnover you will get, and know the money you will make. The originals, however, those are the unpredictable goldmines. In reference to the Netflix original 13 Reasons Why, Hastings states, “We didn’t realize how it would catch on,” and yet the season 2 premier averaged 6.08 million views in the first three days. Hastings uses the information he has on the interests of his consumers, and uses that information to determine the type of show he wants to unleash, finding his competitive advantage.
Just because you know what the people want, does not mean you know how to make it happen.
On the contrary, Elon Musk and Tesla have created their own kind of wild fire. Much like Hastings, Musk broke into a rather untapped market centered around consumer demand. His being sustainable and clean energy for cars. However, the risks he has decided to take have put him in the opposite realm as Hastings, especially in the eye of the public. Creating the first mass-market car in the electric market, a lot rides on Musk, and missed targets and failed promises in the production of the Model 3, have led investors to question Tesla’s market ability. These problems have also deterred clients who have lost trust in the company. After a promise of 5000 Model 3’s per week in production, the last two quarters saw just a combined total of 1766 models, and pushed the 5000 a week target back to the end of June (Recent numbers show a total of 4000 entering the first week of July). Additionally, front-page news reports of Tesla’s catching fire,and threatening the lives of their occupants, have hurt their credibility to an even greater extent.
As if there weren’t enough problems, former technician Martin Flipp’s allegations that the company is using damaged batteries to decrease production time is only adding to the public stir about the Tesla model 3.
There is no doubt that these are two very different markets. Most would argue that the risk associated with creating lofty and unattained goals in the form of Tesla, is a much bigger risk than Hastings choosing what shows to subscribe to Netflix. However, these two business owners took risks based off knowledge of consumer demand.
The difference? Well let’s just look at the top stories for each on Google:
Tesla belonging to husband of US actor Mary McCormack catches fire in street
The difference? Public image. Tesla takes risks in response to consumer demand, promising high levels of production, and ends up with faulty, and potentially dangerous models. Netflix takes risks on incorporating goldmine shows to attack untapped high consumer demand, and original shows such as Orange is the New Black, are in the same headline as Fast and Furious, who has 8 generations of films grossing an average of $189.6 million a film in the box office.
This is a thought for anyone from start-ups to middle market businesses, to even the big powers such as Tesla: there are very tremendous upsides and very dangerous downsides to the untapped consumer market. So, with that being known, are you going to sit back and rely on the reboots, or enter the unknown?
