In September of 2000, the co-founders of Netflix offered to sell their company to the video-store giant, Blockbuster, for $50 million – and were pretty much laughed out of the boardroom. Executives of the $5-billion Blockbuster empire were so complacent, arrogant and blinkered that they saw Netflix as a risk not worth taking. Ten years later, Blockbuster filed for bankruptcy while Netflix was worth $13 billion (and today $250+ billion).
Blockbuster’s monumental blunder is obvious in hindsight but one of the company’s executives acknowledged at the time, “management and vision are two separate things.”
In other words, Blockbuster was so busy running things day-to-day that it didn’t think about tomorrow. By avoiding risk, executives were in fact dooming their company.
According to a 2022 article in Built In, an online publication for startup companies, “Risk aversion takes on a life of its own in an organization. It shows up in procrastinating on decisions, overwhelming rejection of new ideas, overthinking decisions (sometimes called analysis paralysis), decisions made by committee and ideas flattened by an avalanche of questions, some relevant, some not.”
The article, aptly entitled, “Risk Averse? You Might Be Doing More Harm Than Good,” goes on to say leaders should not only accept risk but celebrate failure: “Teams pursuing risky endeavors could well become discouraged and think that their efforts aren’t worthy. Examining and learning from failures, plus applying successes (not every failure is a complete disaster) to future projects helps keep teams happy and productive.”
For many people, that’s easier said than done because risk has to be one of the least understood concepts. We all know about risk and we all think we understand it, but frankly, we know more about what makes us afraid – and we often confuse fear with risk. Fear prevents us from moving forward and is often irrational.
For example, someone who is afraid of flying but needs to get from New York to Los Angeles might decide to drive. But statistics clearly demonstrate the safest way to travel is on a commercial airline.
And then there’s the fear of failure if we take a risk. Basketball legend Michael Jordan put that into perspective when he said, “I've missed more than 9000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed.”
Or, as hockey legend Wayne Gretzy famously said, “You miss 100 percent of the shots you don't take.”
Assessing risk is about identifying the likelihood and the consequences of an event happening. For instance, let's say that I have a very old vehicle that is likely to break down when my family takes a trip. If the weather is warm and we’re close to a town or city, the consequences of a breakdown are slight. However, if the weather is dangerously cold and we are on a rural road, the consequences could be high. That creates a risk likely not worth taking.
On the other hand, if I have a brand new, reliable vehicle and the weather is incredibly cold, the likelihood of the vehicle breaking down is slim even though the consequences would still be high. This is a risk worth taking and, speaking as someone who lives in one of North America’s colder climes, we do this all the time.
Again, one of the challenges with risk assessment is confusing our fear with risk. If I am overly fearful my vehicle might break down I will apply a higher risk factor to driving even if it's not actually likely to break down. If I'm in a very very safe vehicle that isn't going to break down but the weather is cold, my fear would focus on the weather and ignore the dependability of the vehicle.
When it comes to communities and municipalities we do the same. I have worked with many communities where thoughtful leaders have talked about economic-development strategies, marketing strategies and plans of action to help their community succeed and prosper.
However, we hear from the public that these are all risky propositions. Residents are afraid the investments will fail, the money will be lost and the community will be bankrupt. Except in every single one of those communities the reason for investing in downtown development, developing marketing strategies and producing a plan of action is that the downtown is dead, businesses are closing, housing prices are deflating and the community is in a downward spiral.
The risk of doing something is not insignificant. But the risk of doing nothing is very significant.
There is risk in absolutely every choice we make, of course, no matter how small. You might hurt yourself or suffer a heart attack while jogging. But there is arguably more risk to sitting around, gaining weight and letting your heart deteriorate. There is a risk that after going to university and gaining a degree you might not get a job after, but there is perhaps a greater risk that by not going to university (or any post-secondary institution, for that matter) you are limiting your ability to find a job.
The public generally recoils at the thought of risk. That might be even more true nowadays thanks to the financial crisis of 2008 and more recently the COVID-19 pandemic. But we must not be so paralyzed by fear that we neglect our communities’ futures. We should take a lesson from our more optimistic past where through a combination of optimism, pride and risk we constructed iconic buildings in the town square that proclaimed our confidence and fortitude. I fear that given the option today, too many of us would choose the cheapest, shoddiest and ugliest public building possible because it’s not worth the investment.
We are afraid of investing money in the community for fear it won't pay off. But somehow we are not afraid of the inevitable consequence of failing to invest in our community and having it die a slow and painful death. The risk of doing nothing is greater than the risk of doing something. The question is, will the community take a risk that could lead to success or accept the risk of doing nothing that leads to its inevitable demise?
Communities are more likely to understand the need to deal with risk when it comes to preparing for powerful natural disasters such as floods or wildfires. But we are less adept at identifying creeping human-created disasters created by fear and inaction.
Residents must work together to find solutions and that means taking risks together. I realize it won’t always be a smooth journey. A report from Federal Reserve Bank of Kansas City discovered that successful communities share these key attributes: “community controversy is accepted; schools have a major focus on academics, not sports; local people have combined enough financial resources to support some joint risk taking; people are willing to invest financial surplus in local private enterprises; people tax themselves to support local infrastructure; community is defined broadly and inclusively, rather than there being competition among smaller units.”
The report was published more than 20 years ago but still rings true today.