A tale of growth, risk and a tall Ziggurat

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A tale of growth, risk and a tall Ziggurat

When the notion of kingdom came to the city of Uruk in ancient Sumer, it introduced a great many civilization firsts: the first king, the first laws, the first script, the first cattle and the first grains. Under the shadows of towering Ziggurats, the distinctive stepping stone pyramids of old, we also find the first marketplace: a place dedicated to the business of trading goods and services. Extensive clay tablet records show that our forefathers considered trade a serious business. So do we.

Fast forward 5300 years: In many ways we are not much different from the ancients. We still write, but clay has been replaced by bytes. We still grow the same grains, but we ritually mix it with skimmed milk in a colorful bowl. Some of us still live in a kingdom, but no longer under the rule of a king. We also still apply the concept of the marketplace, though size, reach and speed have grown exponentially, not in the least because of the internet. The Uruk marketplace now encompasses the entire globe. Because of the spread of the marketplace concept, the most important change in the way we do business is the role of risk.

Holding the bag

In every business transaction, risk transfers from one party to another. For instance, if I buy a bag of apples for $5 at the grocery store, two things happen. First, the merchant cashes a risk-free $5 bill. Next, I take home a product that can be acid, rotten and full of worms. Thus, the simple act of buying apples has transferred risk from the grocery store to me. The Uruk marketplace dealt with risk personally, in the moment and on the spot. Because of our global business reach, in many cases, this direct handling of business is no longer possible. The flesh and blood human being has been replaced by the faceless customer service desk.

The internet, and especially social media, has therefore changed how we as customers deal with risk. Gone is the immediate and individual approach to mitigate risk: Prospects are now looking for different ways to handle risk instead. As a result, anecdotes are now seen as evidence. One bad review on Facebook may dominate decision-making for many. Furthermore, people are turning into followers, instead of students. The devotion to brands and celebrities provides comfort, yet may close the mind to different perspectives. For example, we now take political advice from George Clooney and Leonardo DiCaprio. The irony, of course, is that these are people who get paid lavishly to pretend to be someone else.

In view of these two developments, many organizations start to focus on creating favorable anecdotes. A focus on anecdotes explains the growing interest in the Net Promoter Score (NPS) as a customer metric. The NPS measures the willingness of customers to recommend a company’s products or services to others. Two-thirds of the Fortune 100 companies now use NPS as a tool to improve business. Next to NPS, another development to mitigate risk in the eyes of prospects is celebrity branding. Thanks to a giant billboard that I passed last week, David Beckham is now forever associated with underwear in my mind.

Risk as opportunity

Building an effective NPS strategy takes time and hiring David Beckham is expensive. Fortunately, there is a proven, yet often overlooked, option to grow a business in a different way. It is called risk reversal. Risk reversal is based on the idea that to grow a business rapidly, one has to stop the obsession with social media and start doing something different: become the no-risk provider in your industry or professional field.

How can you reduce and even eliminate risk for your customer? We see many applications of this concept already. For instance, the ubiquitous 30-day money back guarantee, or the 72-hour clause are all based on the risk reversal principle. Yet, a standard risk-reversal policy is no longer enough if you want to stand out like a Ziggurat and rapidly improve your business. Is there a way to dramatically apply risk reversal, without losing your shirt in the process? To answer this question, let’s have a closer look at the return policy of Zappos, the very successful online shoes and clothing store. It’s very simple: Returning items within 365 days is free. Zappos even pays shipping costs. When Zappos introduced this policy over 15 years ago, this liberal approach to returning online goods was unheard of. A true first. Yet, this policy was a major reason for the Zappos growth from $1 million to $1 billion in less than 10 years.

You don’t have to become an online giant to benefit from creative forms of risk reversal. Take, for example, a second-hand car dealer in my neighborhood. He used Facebook to promote his store and even showed a picture of a local celebrity (a folk singer, no less) driving one of his cars. Then he applied risk reversal with gusto: “Buy a second-hand car and if you don’t like it bring it back within 30 days. You will receive your money back, no questions asked.” A year into this risk-reversal experiment, he told me with a big grin that not only has his business grown significantly, but the majority of the small fraction of customers who returned their cars, wanted to trade them in for more expensive ones. As a result, both his revenue and margins went up!

Become unstuck

If you are doing what everyone else is doing, you are not differentiating yourself from the competition and are probably stuck. Risk reversal is the often overlooked opportunity for many businesses to cut through the noise of social media, NPS and celebrity endorsement and become unstuck instead. Just like the ancients in Sumer, you have the opportunity to introduce a new first, but this time to your industry or professional field: the no-risk provider.

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