How risk reversal unlocks dramatic business growth

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How risk reversal unlocks dramatic business growth

If you don’t have a process for selling, you are at the mercy of someone else’s process for buying. In my experience, the biggest overlooked opportunity for a systematic and predictable business growth process is risk reversal. Let me explain.

In any business transaction, there is always one party that carries most, if not all, risk in the end. For example, if you buy apples at the grocery store, you exchange cash for a bag of fruit. The risk in this transaction ends up entirely with you — the apples might be rotten, acidic and full of worms — while the grocer holds the (risk-free) cash. In this case, the risk may make you feel uneasy about the transaction or even prevent you from buying in the future.

Risk is, therefore, an essential part of any business transaction. Taking risk away from your client is one of the most powerful (and overlooked!) ways to grow any business. The little known secret about removing risk to grow business is called “risk reversal.” Many organizations have made risk reversal a core priority of their businesses.

Consider Domino’s Pizza: risk reversal means that the pizza is free if it isn’t delivered within 30 minutes from the moment of order. The risk of this transaction has completely shifted from the pizza consumer to Domino’s.

There are only three ways to take away risk from your clients or, if you are a corporate employee, from your boss:

1. Eliminate risk: in the example of buying apples, tasting the apples before buying will eliminate the risk of discovering a faulty apple upon your return home.
2. Reduce risk: one way to reduce risk is to let customers inspect and choose their product (such as an apple) before buying. Sampling a product is therefore a proven way to reduce risk.
3. Transfer risk: if the grocery store could design the transaction process in such a way that it carries all the risk at the end, the client would be much more inclined to buy. For instance, the grocery store could choose to charge customers only after they have consumed all apples to their satisfaction at home.

How can professional service providers use this to grow their business? Here is an example of how I have applied risk reversal: As a professional speaker I can’t guarantee the outcomes of my talks. It will depend on things like the temperature of the room, ups and downs of my clients’ business and whether or not there was an open bar just before my talk. What I can control is the quality of my work. I therefore eliminate risk for my clients by guaranteeing the quality of my work. If we both agree that the quality standards haven’t been met, my clients are entitled to a full refund of their investment. Some of my clients have commented that this very condition makes me stand apart from the competition ‘like a tall giraffe surrounded by tiny field mice.’

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