Search for RISK to create new, game-changing business ventures
Original Publish Date: Oct 14, 2020
“Ironically, in a changing world, playing it safe is one of the riskiest things you can do.” – Reid Hoffman
Risk is an interesting concept. Every company wants to eliminate it. If not, transfer or reduce it. Risk can take many forms. Everything from legislation to financing to procurement.
Embracing risk or making peace with it through your business model can lead to the creation of whole new markets or “blue oceans”.
Despite this insight, many mature companies go through a painful, slow bloodletting process of avoiding risks and eventually lose customers, margins on the way to a footnote in history.
It doesn’t have to be too hard to make risk work for your company. Let’s look at creative uses of risk from a few different domains.
Case Study #1 – Turo
“Turo is a peer-to-peer car-sharing company that allows private car owners to rent out their vehicles via an online and mobile interface.”
Risk Creativity
The first fear that comes to any private car owner’s mind thinking of renting out their vehicle is the potential of an accident and the expenses stemming from it. We’re not even talking about the misuse of the car by prospective renters here.
Turo simplifies the insurance piece by rolling it up under their percentage of the (car) booking as their fee. The company currently offers five vehicle protection plans where each plan changes their percentage of any booking. Turo takes the risk of physical damage and will reimburse repair costs beyond the car owner’s deductible.
Case Study #2 – Square
“Square, Inc. provides mobile payment solutions. The Company develops point-of-sale software that helps in digital receipts, inventory, and sales reports, as well as offers analytics and feedback. Square also provides financial and marketing services.”
Risk Creativity
I’ve written about Square in the past, mostly studying the genesis of the company with its (1) focus on traditionally marginalized customers and (2) conversion of industry non-customers.
One way Square won over non-customers was by cutting down on underwriting investigations and paperwork. Banks did not trust small merchants and therefore made the sign-up process for a credit card merchant account hard for the business. This process alienated millions of small merchants.
Square relies on its fraud modeling built on tons of transactions. This makes it easier for them to accept the risk of acquiring any small merchant with limited credit history as a customer. Square takes the risk of fraud directly onto its balance sheet.
Case Study #3 – Rolls-Royce
“Rolls-Royce Holdings plc manufactures aero, marine, and industrial gas turbines for civil and military aircraft. The Company designs, constructs, and installs power generation, transmission, and distribution systems and equipment for the marine propulsion, oil and gas pumping, and defense markets.”
Risk Creativity
Rolls-Royce started offering the “power by the hour” maintenance management option in 1962. Airlines would pay for a complete engine and accessory replacement service on a “fixed-cost-per-flying-hour” basis.
Rolls-Royce reduced the risk for airlines and took it upon itself to ensure fewer engine problems to avoid drastic hits to its own revenue. These days, the company builds on this “power by the hour” legacy by also appealing to the sustainability push from different customers.
Avoiding risk shouldn't be the default mode of a company. Trying to understand risk would be a better default. Don't let risk strangle your evolution. Better yet, make risk work for you!