You’ve heard countless times that there is no reward without taking on risk. To build or grow something sustainable requires balancing the inevitable risk with the optimism of being successful.
By nature, people are risk averse. One of the things I learned in business school is that people will pay a ‘risk premium’ to ensure stability and to create a perception of lower risk.
Take salaries for example: the vast majority of people prefer a fixed salary or hourly wage. This makes planning for expenses and paying bills more manageable. If the business is well run, there will likely, though not always, be a surplus (profit). Studies have shown that on average, people will take a lower salary or hourly wage if it’s consistent, versus a higher level of compensation when tied to revenue or profit.
Optimism is one of the ways we rebalance risk and reward. Being optimistic offsets our natural tendency to be risk averse and sets us up to reap the full reward. Grit and perseverance are important too, but it's difficult to succeed when we aren’t optimistic about our chances.
Solving for the risk equation
While the COVID 19 pandemic has caused upheaval in both business and home life, the risk versus reward equation hasn’t changed. For example, you could take a low risk approach, hunker down, wait for strong signals that business is returning to normal, and only then invest time, energy, and money to build your organization. However, competitors that are more innovative, creative, and faster will be using your downtime to swoop in and gain market share. There's a risk of being too conservative. On the flipside, acting too aggressively without taking an informed, balanced approach, may leave you over extended and set you up to fail.
Optimism makes us more comfortable with taking risks, under the understanding that we never have perfect information and that there are no absolutes. The current environment hasn't changed that calculation for me. The things we do at Propeller are going to be different, but the way we approach the market and the business remains much the same.
The advice I give all businesses is that with everything you do, always build forecasts and business models and use those calculations to inform your decisions. Propeller’s finance team is doing just that: creating multiple sets of pro-formas to understand various “what if” scenarios amid uncertain times. We continue to remain focused on analyzing various scenarios to understand the risk versus reward equation. This is the same practice we used when we started the firm. As we did then, the finance team will analyze a variety of scenarios to evaluate paths forward.
From the work that our finance team does today to look at what could happen and how it could affect our firm, to what we did when we first started, there has always been a significant focus on analyzing multiple scenarios to understand the risk versus reward equation.
The advice I give all businesses is that with everything you do, always build forecasts and business models and use those calculations to inform your decisions. — Jeff Foley
Bet on people
At the start of the pandemic, we made a series of decisions in order to keep our team together. If you didn't know Propeller, you might suggest that the right move would be to lay off employees and begin hiring back when conditions improve. This is something that a few of our competitors have done, but I personally believe that's a death spiral. You want to avoid layoffs at all costs. The obvious risk of that strategy is carrying the additional cost of the headcount. But business requires trust, and once that’s broken, it's tough to rebuild—especially in consulting where our people are our most valuable asset. It’s hard to be optimistic when you’re worried that you could be laid off. Although no business is invincible, I also believe that good management can set up companies to avoid layoffs.
We’re also evaluating the risk of our two new geographies—Denver and Silicon Valley. Silicon Valley is low risk because we can move people to San Francisco, and vice versa. Denver is more of a calculated risk, but expansion has been one of our company goals since we started the firm. Additionally, working remotely may become the post-COVID “new normal,” so starting an office anywhere is a bit easier when resources can be shared across the entire firm.
Solidify relationships, pivot solutions
With tough times comes the opportunity to show your true stripes and demonstrate to your clients and your staff who you really are. If you act in your clients’ best interests—rather than your own—during the most challenging times, you have the opportunity to create lasting relationships.
Consider how your market offerings relate to the post-COVID world. What will clients need, what’s going to be different, how will people work, and most importantly, what can you do to help?
We’re thinking about the business problems we're going to solve after COVID is over, and then applying the same kind of approach, diligence, and intellect to those problems in the moment. Balancing risk and optimism means not deviating too far from what we're really good at, but applying our strengths, skills, and expertise to new and developing business challenges.
Being a team means facing challenges together. At my last firm, topics like margins and net income were never discussed. As an employee, this didn’t foster a sense of trust and created doubt about how a new initiative or direction would benefit the company.
I think a lot of businesses are cautious about sharing information, especially if employees often move between companies in the same industry. Many companies don’t offer as much transparency as we do. This has always been important to Propeller for a number of reasons. First, being transparent builds trust that is valuable when taking risks to grow the business. Second, our end goal is to be 100% employee owned. That journey will take a while, but we have to share information along the way to help people understand our choices and put them in a position where they can one day run the company.
I don't see transparency as being inherently risky. In fact, I believe it’s the opposite. It fosters optimism.
— Jeff Foley
Early in my career, I had a colleague who was always a naysayer, which made them extremely difficult to work with. While I found it frustrating, I was committed to learning how to work with their negativity. I remember going down to Powell’s bookstore to find a book that could help me learn how my colleague’s attitude could be refocused to provide value.
I came to realize that pessimists are like canaries in a coal mine. They can provide an early warning of something going wrong because they're so heightened to what could go wrong and how it might impact them. They provide a helpful counterbalance to someone who may be overly optimistic. The key challenge is filtering out the meaningful insights from the negative noise. Building a strong team that balances both perspectives ensures that we recognize the meaningful insights without becoming distracted.
...pessimists are like canaries in a coal mine. They can provide an early warning of something going wrong because they're so heightened to what could go wrong and how it might impact them. — Jeff Foley
Make informed decisions
Just as we tell our clients, every move should be an informed decision that balances the risk with the potential reward. Taking risks, making decisions, and building a business takes great people and trust in leadership. Optimism is one of the key components that binds people and goals together. And once you get the that formula right, the results will come.