A whole bunch of seemingly separate items all fell into one big pile today.
Simply stated, it has occurred to me that there are an awful lot of people who think that success can be achieved merely by eliminating all risk.
Here are just a few examples:
In dealing with bookstores and book wholesalers, the primary number one rule of how they do business with me is, I must guarantee to buy back any unsold books. No time limit, either. Now at a certain level, this makes sense… if you have a bookstore, and you make, say, a 20% markup on every single book you sell, and you can recoup the cost of any unsold inventory, wow, in theory, you live a perfect risk-free life. You should be able to make money nonstop until the cows come home. It makes sense… sort of… except that it doesn’t allow for any changes in overall market environment and/or any unintended consequences.
Since the primary strategy for success in this case is to avoid any loss/risk, and not to build relationships, offer innovative products with higher quality, or just build larger a markets and customer base, well, even though everything was “done right,” i.e. without any risk, bookstores are dropping like flies. The positive proactive options, such as reaching new customers who normally don’t read much, are not considered. The quality of the products themselves (i.e., the books) also gets taken for granted, as all the energy is put into risk removal. And one day no one comes in to buy the store full of mediocre reprinted books, so you’re getting a 20% markup on nothing. Sure, you can send the inventory back to the publisher, but now you’re out of business.
(Note, for any mistake in shipping, quantity, billing, invoicing, PO number transcription, etc., I must assume full risk, i.e. they don’t pay me. The end.)
Other quick example: I had a disagreement yesterday with one of my banks over an unexpected fee that they charged me. (This “free” account had no activity for a year so they took the $20 I had in there as a “dormant account fee.”) When I called them on it, they pointed out a little item on page nine of a little booklet they had given me 18 months ago. In their eyes, they had no liability because they had put this fine print in there. Okay, so they did. They were “not wrong.” In a purely theoretical realm, they had not made a mistake or done something wrong or unexpected. Great for them, but they lost all my business and are about to get me talking to the entire known universe about their awful service philosophy. God forbid they should have sent me an email telling me to act on the dormant account so as to not incur a fee. I was amazed when talking the bank person that their main point was insisting that they had not done anything wrong, as this policy was printed in this booklet. They completely missed the big picture.
Another area where risk avoidance is king is a professional music business. While I was playing in orchestras, the constant message I received from my union (which was my de facto manager) was that they were doing a great job of protecting me from the risks of not getting paid. Now, credit where credit is due, they do a wonderful job of making sure that people get paid. But what doesn’t get mentioned–ever– is how the creation of new employment (and the risk involved in doing so) was always left to “someone else,” also how so many potential customers are dissuaded from initiating projects because of the difficulties of working with the all the risk-elimination red tape that hiring union players requires. When we got hired, yeah, it was good money and we always got paid, but big picture, we got hired less and less. Great.
(Note, when “Star Wars” was first produced, the sound track orchestra musicians were offered a percentage of the gross in lieu of payment. They all took payment.)
Yes, there are of course some bad guys out there, but by creating an environment where trust is moot, with so many things having to be signed and guaranteed, it slows the wheels of commerce in ways that cannot be seen at first glance. The idea of “risk elimination” sounds like it’s just one separate item and has no further effect, when in fact it becomes a huge drag on the proceedings. The idea that risk can be eliminated is simply impossible.
The biggie in all this of course, is the derivatives. This was brought about, yet again, by the whole “let’s not create any value, let’s not expand service, let’s just eliminate things on the negative side of the balance sheet” philosophy that took over the big banks. Sure, there was profit motivation, but the real goal was not at all to do good things or create general wealth; the goal was to sit on a cash cow and eliminate possibility of the cash going out, by getting OTHER PEOPLE to assume the risks. They believed they were invulnerable to risk themselves, and they got careless. Boom.
There are so many people these days who think they can get rich simply by cutting expenses, and I lived that way a long time and I can tell you it a) doesn’t work and b) is not a good way to live your dream.
I can’t help but wonder where our ability as a culture to assume and understand acceptable risk went. What would have happened if any lawyers or insurance agencies had been around when the wagon trains went west? “We can’t go to California– I can’t get insurance against starvation.” Sounds ridiculous, but that’s what it is.
I am convinced that the fear of “looking stupid” is really behind all this duck and cover approach to any kind of risk.
The people who built the wealth of America did so by assuming risk. Yes, it is to be avoided, but eliminating risk is a fool’s errand. Trying to eliminate risk is in itself a huge risk, as you will never succeed at it, it does not create wealth, and it can eat up most of your working capital in trying.
And another little note: if you persuade yourself that risk has been eliminated, that belief will inevitably leads to reckless behavior because you will think you are invulnerable. Believing there is no risk at all is . . Very risky.
So the next time you look at company policy or new initiatives, is there anything new or bold or creative in it, or is it just another iteration of avoiding the negative, i.e., a fear of looking stupid? You cannot make positive things happen merely by avoiding negative things. Two wrongs don’t make a right, and total elimination of risk by itself does not make a strategy or a leadership.
© Justin Locke
