Steven's Blog

When Risk Aversion Personal

When Risk Aversion is Personal

There is nothing wrong with risk aversion.

It is only aversion to reasonable business risk that is a problem. When a business leader complains of excessive risk aversion in his staff, the underlying concerns are frequently personal.

I was recently working with a sales team reviewing their channel distribution model. I asked why they were using distributors with customers to whom the company is perfectly capable of selling direct. In their view, the business risk was too high. The distributors were used to mitigate the loss of bad debt when a customer goes bankrupt. Five percent of customers, according to them, fail annually.

Yet, when we calculated the real financial exposure to the company in a direct sales model, even in the most of extreme of cases, loss due to bad debt would be only a fraction of the amount of margin the company was ceding to its distributors. More importantly, the company would form relationships with end-user buyers. This is a reasonable business risk as is any action that has a high potential upside gain and low potential downside loss. So why not take on this reasonable risk?

It was not the “business” risk with which the salespeople were concerned. It was the risk to themselves personally. The salespeople explained they were held individually accountable for their customers’ unpaid bills. Compounding the problem, salespeople in the company were tasked with collection. Collection is not only time-consuming and unpleasant, but also takes away from time they could be selling to other customers, not to mention it puts salespeople in an awkward position with their customers.

No matter how reasonable the risk was for the business, for the salespeople personally, there was nothing but a high potential downside loss for almost no potential upside gain.

The company changed its practices. Collection was left to accounting and legal departments. Salespeople were tasked only with selling. Opposition to selling direct immediately faded.

If you think your staff is overly risk averse, have a candid conversation about underlying concerns. Click To Tweet

Address personal concerns, and you will find aversion to business risk will fade.

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