PRINCIPLE III: Use Risk As A Compass
“Fear’s a powerful thing. It’s got a lot of firepower. But if you can figure out a way to wrestle that fear to push you from behind rather than stand in front of you, that’s very powerful.”
– Jimmy Iovine, Cofounder of Beats Electronics
SURFERS USE RISK AS A COMPASS
1. SURFERS AND RISK
Embracing the conditions and building new skills through a progression-based mindset are the first two principles of the surfer, but what separates the pros from the rest of us is their ability to explore risk. For surfers, the gateway to success is risk. The more risk surfers take on and explore, the better they become. The more they are challenged to advance their skills and capabilities, the more progressive they become as surfers. Surfing carries a high level of risk, and the consequences from blindly pushing for risk without careful planning can be disastrous. Some of the best surfers in the world have lost their lives when they encountered a risk that they were not prepared for. For business leaders, the biggest risk is job loss, or in extreme cases, prison for conducting business in an illegal or unethical manner. But for the most part, we tend to encounter more mental hurdles than we do life-or-death situations.
THE IMPORTANCE OF RISK
Surfers are wired differently because of the demands of their sport, and they have been conditioned to look at risk in a different way than most of us. Overcoming risk can be the difference between surviving failure and finding success. When discussing the risks in surfing, it’s also important to talk about progression. For surfers, progression in their sport is limited by the amount of risk they are willing to take. If they do not take on and continually explore risk, they will not progress, which slows down their ability to develop new skills. Tow-in surfing and big wave riding has proven that surfers have conquered all aspects of the ocean and surfed waves that were thought impossible to ride, even just a few years ago. By challenging their skills and also their mindsets about what was possible, they were able to take on risk and move the sport forward to create a whole new category of surfing.
SURFERS USE RISK
What makes surfers different from other professional athletes and makes them a good example for business leaders is their approach to risk. Action sport athletes are in one of the few professions that encourage personal risk. The consequences of failure for surfers is so much higher and more extreme than it is for most action sport athletes, but the risks are a significant part of the sport and ingrained within everything the surfer does. The surfer’s ability to challenge and confront risk determines success or failure. The mindset of surfers is to evaluate the risk, determine if they have the skills to handle it, and take action in the face of the unknown. As a surfer seeking and exploring risk, you need to accept the risks, persevere, and then push through. This is how surfers use risk to become better and how they benefit from the new opportunities they create for themselves.
2. THE BENEFITS OF RISK
Although the risks continue to increase the more a surfer pushes to embrace the conditions and learn new skills, there are also a set of benefits to the sport that develop as the surfer pushes through each new challenge. The first benefit from risk exposure is the physical result of taking on increasingly greater challenges. The more the surfer tackles new challenges, the more physical health benefits will develop as a result. Surfing is considered one of the most challenging sports because of its various physical elements, including cardio endurance, upper-body strength, and core strength. In order to do one of the basic moves in surfing, good total body strength is needed to move from a prone position to a standing position on the board. This makes surfing one of the most physically demanding sports, and for people who participate with the intent of pushing through risk-driven situations, the physical challenges continue to grow the more that a surfer takes risks on their board.
Along with the physical benefits of surfing, there are the mental health benefits of doing something active as well. Exercise and physical activity have been proven to help people reduce stress and become more relaxed as well as to contribute to better overall moods. The same is true for people who pursue physical activity through a sport like surfing. In addition to the mental benefits, there are also the psychological effects of taking on a new risk and the feeling of success that comes from having accomplished what you set out to do. Surfers spend hours attempting maneuvers and trying to perfect new tricks on waves. There is a strong sense of accomplishment that comes from planning a trick, attempting that trick, and pulling it off after multiple attempts and various bumps or bruises collected along the way. Surfers describe that feeling as the “stoke,” and experience it when they catch a wave, ride the tube, or land a challenging trick. This stoke provides a sense of gratification and accomplishment that makes taking the risk and the payoff worth the effort.
In addition to the physical and mental benefits from risk, surfers also receive the obvious benefit of building their skills. As surfers increase the amount of risk they take, the benefit becomes improved skills and abilities. Surfers take on risk to do more challenging tricks, such as cutbacks and aerials, but they also take on risk by surfing harder and more challenging waves. Depending on where they are surfing or at what break, surfers will have access to a certain type or size of wave. As beginners, surfers start with smaller waves in low-risk conditions and usually attempt only basic maneuvers. But as they build new skills, surfers search for bigger waves and also try to expand their capabilities beyond the basics. As the sport has progressed, so has the level of risk that surfers need to take in order to become the top professionals in their sport. By big wave surfing in places such as Mavericks and Teahupoo, surfers can make a name for themselves because of the risks and skills involved, and no one is better at this than Laird Hamilton.
3. LAIRD HAMILTON
LAIRD AND RISK
One of the best and most well-known big wave surfers is Laird Hamilton. Laird is considered by his fellow surfers to be one of the most talented and innovative surfers in the history of the sport. Hamilton approaches surfing from a unique perspective and is less concerned with the stylistic aspects of the sport and more interested in progression, innovation, and taking on extreme risk in order to push the boundaries of surfing. Hamilton developed tow-in surfing to ride waves once thought too risky to surf. He created a revolution in the sport that brought big wave riding to the forefront of surfing. According to Laird, tow-in surfing happened organically and was simply a way to progress his skills. However, it also changed the perspective of risk and what was thought possible within the sport. By exploring risk and surfing bigger waves, Laird also improved safety for other surfers by developing a rescue option that was not considered previously—or until he started surfing bigger waves.
LAIRD EXPLORES RISK
Laird shatters the mold of what most people think of in terms of a surfer. He combines his extreme physical and mental strengths with an in-depth understanding of the ocean. He says, “Part of it is the ability to be able to see things differently enough to understand what it means to implement it. When people are innovating something, they usually have that ability to understand it before they see it.” Laird understands progression when it comes to big wave surfing and believes there is a safe line you can always take, but that you need to push that line in order to progress the sport. Laird says:
I always say that people only do dangerous things in three ways; in fear, ignorance or denial. Everyone involved in these kinds of sports has a certain amount of each of those. I think that if you’re conscious and you really assess things, and it is a dangerous situation, then you should have a little bit of fear . . . When you see and learn, you skip the unknown. When you don’t see, you step into the unknown, and that’s usually where a lot of the fear is.
THE MILLENNIUM WAVE
In the year 2000, Laird surfed at a spot called Teahupoo. He caught what would be known as the “Millennium Wave”—a seventy-foot wave that was captured on the cover of Surfer Magazine with the caption “Oh My God” and that would change the sport of surfing from that point forward. It was a perfect union of past knowledge and skills combined with new technology that had not been applied to surfing before. Laird describes his wave at Teahupoo like this, “That wave in Teahupoo was a wave we didn’t know existed. And the ability to ride that wave in any form didn’t exist either. There was no way that wave could have been ridden without towing in. It was a barrier-breaking moment. It showed me and others that waves like that can be ridden.” To surf the Millennium Wave, Laird embraced the conditions, had a progression-based mindset toward his skills, and took a risk to make what was thought to be impossible become something that was now possible.
NEW RISK IN BUSINESS
1. MARKETING AND SALES
Most marketing plans fail to produce the intended results. With so many marketing initiatives missing the mark, there is more pressure than ever on business leadership to produce results. This is the new risk within business that we face as marketers and one of the biggest challenges in the new conditions. The knowledge that there is a better chance that a new initiative will fail than it will succeed is not only demoralizing, but it also creates new risk for organizations. With the conditions constantly changing and the need for advanced marketing and sales skills, the risks have become greater than ever before. We have more technology and analytics available to us, and there is more transparency around our actions that highlight our successes and also our failures. The surfers who expose themselves to risk every time they paddle out into the water have a better chance of catching a wave than we do at creating a successful marketing or sales initiative. It could be argued that the risk profile is actually higher for business leaders than it is for the big wave surfer.
RISK IN BUSINESS
Marketing expenditures hit one trillion dollars at the end of 2016, but most CEOs said that their marketing teams could not explain where incremental growth came from under those plans. Technology has created conditions for business leaders that are now more transparent and there is a new level of accountability for marketing and sales. Gone are the days of blindly putting resources against a marketing initiative and hoping the numbers go in the right direction. Social media and software platforms are now able to measure every action a customer takes, and this new pressure to perform has changed the way organizations evaluate their marketing efforts. “Likes,” “shares,” and page views all inform the marketer to a far greater extent than ever seen before. There is more measurement on actions taken, more transparency regarding results, and greater accountability for organizational leadership. It has created more risk for marketing and sales teams that will need to take steps to embrace the new conditions, learn new skills to manage the change, and then use this new risk to their advantage.
With this new pressure to perform, leaders often succumb to the challenges, focusing on “keeping up” with trends versus stepping out in front of them. They view change of any kind as a risk. They settle back into the old ways of doing things and become content with “playing it safe.” With failure rates so high, and now part of the new conditions, managers will avoid trying something new out of fear or to avoid risk in order to spare themselves the personal harm that comes with a failed attempt. With the average “life expectancy” of a marketer at two years, you can’t blame them. The risk profile is now so high that it is hurting the way we do business and impacting our ability to create value for customers. Poor leadership, fear of change, and risk avoidance all contribute to the poor results and ultimately hurt customers in the process.
2. THE STATUS QUO
DO NOT LEAD
The organizations that are struggling in the new conditions are not leading, but instead following within their markets. The performance pressure on business leaders to predict and produce results has created an aversion to risk for organizations. Along with a resistance mindset, organizations have created a culture of risk aversion and incentives that reinforce playing it safe. There are no real incentives to lead, and traditional organizational incentives are set up to reward behaviors that do not explore new risks. Marketing and sales leaders will not explore risk that puts the organization in a leadership position because being the market leader is risky. There are challenges to maintaining the lead in a market, and organizations have to be continually breaking new ground to stay ahead. It’s a tough position, and companies struggle to embrace the challenges and risks associated with a market-leader position. Instead, they often follow the pack. Maintaining the status quo becomes accepted, and organizations stay away from the risks associated with being a leader in the market.
NOT OPEN TO CHANGE
Aversion to risk is also related to an aversion to change. Change is perceived as risk, and when constant change permeates a market or an organization, the mentality is to “CYA” or “cover your ass.” It’s human nature, and we avoid anything new that might threaten the established norms. But this modus operandi for conducting business ties the hands of leaders from doing what is right for the business situation. Organizations create systems of “tribes” or like-minded people, and these systems condition people to work a certain way. When you work with like-minded people, it’s comfortable and easy because you’re not challenged or forced to do things that are new or innovative. You stick with what you know because that’s what the group knows. Even if there are problems, the internal systems continue to push the status quo and to push for the same results. This process is familiar and comfortable, even if it doesn’t work, and the organization rewards compliance to the old ways of doing things instead of creating rewards for behaviors that are new or innovative.
When organizations do not lead and are not open to new change, they practice risk aversion. To organizations, the risk can be the new change being proposed, the potential impact the change will have on the organization, and whether or not the new risk will fit with the collective mindset of the organization. When the conditions are challenging outside the organization and leaders are not taking the necessary steps to meet those new demands, it can feel as though there’s a lack of control inside the organization. This sense of having a lack of control leads to feelings of vulnerability, and risk exposure decreases for the organization while risk aversion increases. The willingness to change and adapt to the new conditions is averted, and risk-free actions maintain the status quo. Having a long-term perspective and making strategic plans for the future of the business are prioritized less because organizations avoid the risks of taking a chance on the unknown.
3. THE RESULTS
When companies avoid risk, they maintain the status quo and often see poor results. Organizations see the kind of growth that only happens as small numbers of new customers are acquired or as a market increases in size. They will not have the big breakthroughs that happen when organizations explore risk and create new products, improve the way they market and sell existing ones, or find new ways to solve problems for customers. In addition to poor results, organizations experience the ups and downs that come with inconsistent performance. When companies are not exploring risk or using it as a compass to drive new initiatives, success becomes happenstance, and results are hit or miss. If there is no consistency with their efforts to explore new challenges, the results will be inconsistent as well. Hoping for better results without doing anything new will not work in the new conditions, and it’s a disservice to customers who have much higher expectations for products and services.
Talented professionals know how important job experience is to their careers long term and will no longer be tied to an organization that does not provide new professional challenges. Top talent looks for organizations that are ahead of the curve, trying new things and bringing innovation to marketing and sales teams. Organizations that stifle creativity and progression with the old way of doing things and have a low risk tolerance for anything new will push talent out the door. Talent will always leave a company for new, better, and more challenging opportunities—especially for more aggressive, risk-driven cultures within progressive organizations. Just as customers now have the power in the company-customer relationship, professionals now have the ability to demand better working conditions, better hours, better pay, and most importantly, better work. If the work does not challenge people’s skills, companies will likely have to settle on candidates who do not have the experience for the job, or they will have to hire less desirable talent who do not fit the organization’s needs, culture, or long-term vision.
CUSTOMERS GET BORED
If your talent starts to make their way out the door, it’s almost a certainty that your customers will leave you too. If you are not exploring risk and challenging the organization on behalf of your customers, they will get bored and leave you for someone else. With the increasing number of products and services available to customers, break-ups between customers and a company are much easier to do. Customers have more buying options, and the trade-off is often a better product at a lower price. If you are not offering value or taking risks on behalf of your customers, they will become disinterested in your offerings and leave you to be with those who are. Customers want to be affiliated with products that are new and different. If you are not willing to change the way you do business and explore risk, the market will weed you out as more forward- thinking and skilled organizations take your place.
THE NEW PRINCIPLE
1. HOW TO USE RISK AS A COMPASS
Because of how fast market conditions are changing, leaders need to explore risk in ways that they have not done before. Surfers use risk as a compass to point them in the direction they need to go to improve their surfing and progress in their sport. Business leaders will need to take a similar approach to market challenges in order to identify new opportunities. Risk exploration is the new principle for how we will need to approach the new obstacles we are facing. This new approach will help leaders create new opportunities for the business and break new ground that was once avoided because of the perceived risks. Organizations will need to develop plans devoted specifically to exploring risk. The plans will need to provide a roadmap for exploring new ideas and initiatives and managing the potential risks involved with making these kinds of new strategic decisions. Basic strategic planning is no longer enough, and organizations will need to build risk into plans in order to succeed in these new conditions.
In addition to planning for risk, leaders will need to begin prototyping the new ideas that are built into risk plans in order to understand the new market conditions. This is an “adaptive” or “evolutionary” process to embrace the conditions and learn new skills, but also to use the results of their actions to take progressive steps forward in light of the risks involved. Leadership will also need to build up a risk tolerance for prototyping ideas and be okay with experimentation and the failure that may result during this part of the process. Prototyping ideas in practice will help uncover the risks involved, and as a result, organizations will better understand how new ideas will translate in the real world. This part of the process is important when risk planning and provides most of the innovation for new ideas. Prototyping ideas and concepts will allow you to build confidence in taking on new risk and to develop strategies that better match with the needs in the market.
After planning and prototyping for risk, leaders will need to create rewards for their efforts and align incentive systems to support the new risk-taking actions. Leaders will need to clearly and openly create rewards and incentives that support risk and also create the new context in which the risk initiatives will exist. Part of the problem business leaders have had is the repeated failures of new marketing and sales initiatives. Most failures were not the result of poor planning, but of poor execution and not fully committing the organization to the new business context because of the risks involved. Incentive systems, bonus structures, review processes, and even the organization’s culture should all support the new context and inherent risks. If incentive systems and processes continue to reinforce and reward the status quo, risk planning and prototyping will offer little support as you explore risk. New incentives built on risk need to keep the organization on track and headed in the new direction.
2. THE BENEFIT
For marketing and sales leadership, we will need to use risk as a strategic compass that points us in the direction of new challenges, but also new opportunities. Without risk, there will be no reward. Without the trade-off of exploring risk as a strategy to find success, there is no chance of accomplishing anything great. The organizations that plan for risk in order to find success will experience better results compared to those that do not. Of the companies that strategically examine risk, two thirds achieve increased profitability or revenue growth. Of that group, 25 percent of organizations achieve it in both areas.4 When companies explore risk, there is a good chance that the business will improve. Not only do companies enhance their chance to improve profits, but there is also a good chance that revenue will improve as well. The trade-off is simple, but the exploration of risk is much more challenging. Most organizations are risk-averse and will not openly expose themselves to the challenges associated with risk. In these new conditions, however, leaders will need to take a new approach and explore the benefits that come with risk as a strategy.
VIEWS OF RISK
Organizations that explore risk are more successful. Leaders who have a healthy relationship with risk all approach risk the same way. They manage it, plan for it, and build it into their internal systems. The successful organizations have developed a new relationship with risk and are the leaders within their markets because of this approach. They have given themselves and the organization the freedom to prototype, test, and fail, always trying to move closer to what will best help the customer and also make the organization more successful. Organizations that have a positive view of risk see themselves as “learning organizations” and use business risk to evolve or change. Business leaders will need to explore new ideas, regardless of the perceived risks. Organizations may only have a few chances to ride the wave in a market, so risk is necessary in order to learn, grow, and build something new.
Much like a property developer would create a contingency fund for a construction project that could go over budget or accrue unforeseen costs, organizations have to build risk into financial planning and plan for setbacks that may occur because of the unknown risks explored. Leadership will need to work with sales and marketing teams to develop contingencies that will support risk by including “time spent” measurements or financial incentives for trying and failing. When a new initiative explores risk, incentives and rewards should be considered. If the new initiative struggles because of the risk, the culture, incentives, and rewards all need to continue to support the effort long term. Just like the surfer who continues to progress and learn new skills in the face of risk, business leaders will need to constantly challenge and update plans so that incremental risks are taken and the organization continues to move forward.
3. JOHN’S RISK
A NEW JOURNEY
After working professionally for fifteen years inside organizations, I was ready to do something on my own and begin a new journey. It would be my first experience working for myself, but I felt like I had learned a few things over the years and was at a point in my career where I was ready for a new challenge. Launching a business would be a good change and there would be long-term benefits that come with the experience of starting a business. However, I also knew that I would be taking on new risk—the most that I had taken up to that point in my career. The first thing I did was to begin minimizing the risks as much as possible. The risk plan was based on the initiatives and strategies I would use to start and build the business, but I knew that the financial risks would be the most challenging to overcome. If I could overcome the initial financial risks associated with starting a business, there was a good chance I would be able to have the business up and running.
PROTOTYPE AND TEST
As I started to build the business, my focus was on learning more about the sales and marketing challenges that organizations were facing and developing a solution to help them solve these problems. To reduce my risk further, I began to test and prototype business ideas with personal friends, colleagues, or professional connections. There was a lot of trial and error at this point in the process, with most of my time being spent trying to understand the challenges of the market and what problems organizations really needed solved. I took each encounter, good or bad, as a learning opportunity and a chance to build a business that would be valuable, unique, and relevant to what businesses were experiencing in the market. As I tested my ideas and prototyped possible solutions, I noticed that some of my original assumptions were wrong and that I would need to keep working at the business and testing new ideas until I found solutions that were relevant to potential customers and solved their problems.
RISK AND REWARD
During the planning and prototyping process, I took on risk to test the assumptions that were within my original plan, which allowed me to explore new ideas in the market before they went live. I was able to develop a business concept and began the process of marketing my services. As I started to promote the business, there were challenges and risks associated with everything I did. Now that I was on my own, the risks were greater, the challenges were much harder to overcome, and everything took three times longer to complete than I had planned. Along the way, I tried to recognize milestones and, as much as I could, celebrate the small successes. I had to reward myself for the risks I was taking and create times during the day or week where I would recognize my accomplishments. There was risk in striking out on my own, but there was also the reward of embracing these new challenges, learning new skills, and starting a new business in the face of risk.
Homayoun Hatami, Kevin McLellan, Candace Lun Plotkin, and Patrick Schulze, “Six Steps to Transform Your Marketing and Sales Capabilities,” McKinsey Quarterly, March 2015, https://www.mckinsey.com/business-functions/marketing-and-sales/%20our-insights/six-steps-to-transform-your-marketing-and-sales-capabilities
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