Marc Randolph on how risk tolerance may be crucial to running a business
To what extent is risk-avoidance holding back your company’s decision making and attitudes?
This question is crucial to grasp one of the key insights that Netflix co-founder and first CEO, Marc Randolph posed for his VTEX DAY talk.
Rather than entrepreneurship lessons or tips for someone interested in creating a start-up, his presentation posed valuable insights for those of us already running a business.
So we will focus on one of the points he raised, which is the aspect that may have the most impact in holding back a company’s management: its attitude on risk-taking.
Risk, fear, and the importance of testing
“You don’t need to be in Silicon Valley.”
Randolph used this sentence to make his message clear. But what does it have to do with risk?
Many business owners, directors, and CEOs believe that their company has to be located in Silicon Valley to reach peak success. This very ambitious goal may actually steer growth for several business ventures, however, it is a mindset that poses a problem as well.
Going for a goal of this kind may create a perfectionist mentality, which may work against risk tolerance.
Even leaders are afraid of running risks and staking their reputation, investments, and time on a project or process that may not be successful. This kind of risk avoidance is natural, but Randolph argues that fear of not taking risks may drive good ideas and lead to success.
So where does testing come into the story?
The key aspect of Randolph’s thinking is that even a venture that starts off badly may evolve into a good idea or it may lead to a better one – as long as you do not give up on it. If you do not put an idea in practice, or if you stop trying it out, your insight may be written off as a weak and unlikely to drive to a new path to success.
One of the main ways of mitigating the risk of making mistakes is testing out your ideas. Experiments offer direction on the best moves to take because they give an inclination as to whether the path you’re testing will or will not succeed.
Randolph emphasizes that the first step is to get stuck in, rather than waste time wondering whether a certain idea is a good one.
This reflection connects to his thinking on creating business models: a business does not have to emerge from a great idea or be an original or complex one. His theory emphasizes that once an insight has emerged, it should be tested or at least held ready, exercised or started as soon as possible – the important thing is to avoid the risk of forgetting it – which is very common if they are not putting it into practice as soon as possible.
Ideas cannot be polished and honed until they have been tested first. After all, knowing the strengths and weaknesses of an idea means that mistakes will be less likely and this will more clearly point the way to successful outcomes.
Taking risks may be the low-risk way
Recently, the fourth issue of eCommerce Talk featured the subject of the Fourth Industrial Revolution. One of the themes we covered was precisely on how business models emerge and grow in this age of disruption.
This is a new scenario in which most companies are carrying low costs so they can very quickly bounce back after making a mistake.
This is partly because these companies are offering cloud-based solutions or use cloud-based services, such as Slack for internal communication; Digital Results for automated marketing; or VTEX itself for digital commerce management/operation.
The point of intersection between the podcast and Marc Randolph’s presentation is that most companies today are carrying low costs and can very quickly bounce back after making a mistake.
The point is that basing new developments on the cloud is much safer. Backups are easier to make and rollbacks are easier to do – not to mention the endless possibilities of combining different data sources with big data and using this for predictive analytics. Finally, there is a faster workflow between operating, measuring and adjusting – which means more security for each risk taken or each test run.
Randolph encourages everybody to try out their ideas until they become viable solutions – or create these solutions – and the market will respond by showing much more support for this attitude.
We are gradually migrating toward a high risk-tolerating scenario. After all, the boundary between more conservative and more progressive management mindsets tends to be more tenuous, since the impact of mistakes on business results may be less ( due to less reworking, more data, more intelligence, etc.).
This makes Marc Randolph’s ideas increasingly plausible in terms of putting them into practice.
Other challenges highlighted by the presentation
Of course, this one-hour talk covered more than just risk tolerance. The Netflix co-founder also told us something of his own story; how looking at consumer grievances was a source for good ideas. He emphasized the importance of being optimistic and confident in order to persist with certain projects and processes; professionals and entrepreneurs do not have to be geniuses or be specially trained to succeed in their careers and in business, among other topics.
Marc Randolph’s discussion was one of the most eagerly-awaited and most often praised segments of this latest iteration of VTEX DAY. He offered tremendous insight that sheds light on the notion of testing, and how it can be immensely useful for businesses.