Taking the right risks one of the catalysts to personal disruption and get leaders equipped to harness change.
There are two kinds of risks to distinguish between competitive risk and market risk.
Competitive risk: to assess what opportunities your product have, whether you can compete and win so it is worth pursuing.
Market risk: when you don’t know whether there is a market there, although there is a need not being met, so it is worth looking into.
We tend to prefer competitive risk because it feels more secure. We know the steps, see the lights, and consider the pro and cons. But empirical evidence says that market risk is less risky than competitive risk. According to the research done by Clayton Christensen, when you take on market risk over competitive risk, the odds of success is 6x higher and the revenue opportunity 20x greater. Plus analysing 40 companies that were identified as disruptive (e.g. took on market risk) in 10 years after went public, the average price/earnings multiple for these stock was 30x or double that of the broader market.
Brain science also supports market risk over competitive risk. When you compete your sympathetic nervous system mobilizes the body for a fight-or-flight response and releasing Cortisol. Your body likes Cortisol initially, but after a while when its rush levels off, cognitive functioning deteriorates, judgement, memory and even the immune system all decline. However, taking market risk involves a much healthier mental state. For example creativity may increase feelings agreeableness, conscientiousness an openness, leading people to act more responsibly, cooperatively, receptively and cheerfully. While we perceive a new unknown idea as more risky than an established one, what happens in our brains tells us otherwise.
Despite our fidelity to the certainty of competitive risk, the natural world, business research, and brain science all tell us that trying something new is less risky and ultimately more satisfying.
THE BEST WAY TO TAKE ON MARKET RISK IS JUST TO PLAY WHERE NO ONE ELSE IS PLAYING.
- Where do you take on way too much competitive risk?
- How and where can you find and take on market risk?
- How and where can you play where no one else is playing?
Source: Disrupt Yourself by Whitney Johnson, 7th World Business and Executive Coach Summit