Business trend – WHO DARES WINS
Isn’t a recession the time to take things cautiously? No, says writer Nick Tasler, businesses should be taking more risks
WHILE SWATHES OF people are trying to quit smoking, lose a bit of weight or start their DIY plans as this New Year’s resolution, American consultant and writer Nick Tasler believes businesses should be setting their sights on a more adventurous aim in 2009: to take more risks.
It’s a brave approach – and some would use another word altogether. In spite of the economic gloom that is now allpervasive, Tasler, director of research and development for US think tank TalentSmart believes that actually now is the ideal time to take calculated risks with your business model. When many of your competitors will be playing safe and battening down the hatches, it’s a great opportunity to experiment with new ideas, he argues. “I actually think there’s a lot more opportunity for businesses currently, simply because ordinarily the opportunity is competitive,” says Tasler. “In a case like this, when times get tough, most people tend to clam up. Right now, there’s less competition for opportunity.”
As recession casts its shadow over the economy, those at the helm of companies tend to respond by being extra cautious or keeping carefully in line with competitors, for fear of their business’s health worsening still, but that’s where they go wrong, according to Tasler. “The problem is that when things get tight like this, most people in charge of businesses make one of two mistakes. Either, they do nothing, they sit back and pray that something changes and saves them, or, second of all, they get into a very dangerous game of follow the leader.”
Tasler’s latest book, The Impulse Factor, is about the psychology of decisionmaking. Its central thesis is that a quarter of us are impulsive risk-takers and three-quarters of us, including many CEOs of major corporations, are cautiousrisk managers: “People who worry far more about falling behind than they worry about getting ahead.” It was this anxiety about falling behind the pack that led to the current banking crisis, he claims.
When things fi rst started getting tough three or four years ago in the US, the major banking institutions started playing follow the leader. They started throwing fundamentals out the window and get into the sub-prime lending game, even though it defied everything they knew about fi nance: they were very high-risk loans, which didn’t have a very good chance of being paid back.
” Yet one bank that decided largely to shun sub-prime mortgages while all of its rivals dived headfi rst into that murky market is Goldman Sachs. It is noteworthy, says Tasler, that Goldman Sachs has thus far managed to weather the fi nancial crisis better than most.
“Goldmach Sachs is consistently lauded for being one of the more risk-taking investment banks. But it’s one of the only banks to get not that involved in the sub-prime loans that created this whole meltdown. Why? Because three to four years ago, the big risk seemed to be to not get into this. The other banks said: ‘Everyone else is making money hand over first on this, so if we don’t start getting into sub-prime loans we’re going to fall behind.’ But Goldman Sachs didn’t take the bait. They took what seemed like the risky option by doing something else.”
At times of financial uncertainty, taking risks, albeit considered, not careless ones, and marking yourself out from the herd will pay dividends in the long run, reasons Tasler: “If you’re holding your ground, then when the economy bounces back, what has been steady is going to be growth. Maybe in the short term the market will decrease but eventually it will regain its normal size.
” According to Tasler, a choice example of a company that took such risks and blossomed during tough times is American department store Sears. Under the stewardship of Robert Wood, it forged the template of the modern department store during America’s last great fi nancial meltdown in the late 1920s.
“Back then, there were no department stores in the US. There were just mailorder businesses. But Robert Wood saw the change in demographic coming in the country. And when finances started getting tough, he was already prepared to take Sears in this new direction. He took a risk, though, and this is the important thing, it was a calculated risk. He set up experimental stores, based on the sites of Sears’s mail order distribution centres. It wasn’t that big of a deal if it didn’t work, he had a back-out plan. But it did work and he could take them in a whole new direction.
” It’s all well and good exhorting people to take risks with their businesses in the current climate of worry and fear, but isn’t the point that there can be a high price to pay for being overly adventurous during these times of tight margins? Not if you’re careful, Tasler counters.
“You don’t want to put all your eggs in one basket, but you should certainly be devoting a certain percentage of your margins, whatever you feel comfortable with, to trying out new things. Maybe it’s just 10% of your profit or 20%, but you need to be devoting some amount of money to new, innovative ways to getting yourself out of the rut. The biggest risk right now is to take no risk.”
Impulse Factor by Nick Tasler (Simon & Schuster, £12.99) is published in paperback on 5 January
