In 2011, the New England Patriots offered Aaron Hernandez, a promising young tight end who played just two seasons, a contract extension worth $40 million.
Hernandez was arrested on a murder charge two years later, in June, 2013. His employer released him the same day. The Patriots, “a team long considered a model of fiscal prudence and solid character, were the unlikely conduit for one of the most ill-advised contract offers in NFL history,” The Wall Street Journal reported (How the Patriots Lost Their Way, July 12, 2013).
“Interviews with NFL executives, agents and former players suggest the Hernandez contract was the result of a decision the Patriots made to embrace more risk . . . they also suggest the NFL’s current economic climate played a role in encouraging that decision, and that all teams may be more inclined to make serious commitments to a riskier pool of players.”
Whether you’re selling sports entertainment, IT services, or industrial pumps, risks swirl around like poltergeists. In business development, we give a tacit nod to their presence when we talk about funnels, pipelines, and forecasts. But as we know from the Patriots, executives who ignore risks or downplay their significance often pay a large penalty. The dangers are especially acute when marketers assign attributes like surefire and guaranteed to business development strategies and tactics. If only such claims were true.
Mostly, risks are misunderstood. If you set aside the negative connotations for a moment, risk simply means uncertainty toward reaching a goal. Not every prospect will buy from us – a hard fact we must deal with, or find another job. Dictator, maybe. Or warlord. Though lately, even these occupations face a risk or two.
The right question isn’t “how do we avoid risks?” but “how should we manage them?” And that requires identifying them, then assessing their likelihood and impact. Regarding Hernandez, had the Patriots performed even a perfunctory analysis, his coaches would have discovered before he first signed that a scouting report gave him a one out of a possible ten in “social maturity,” and it stated that “he enjoys living on the edge of acceptable behavior.” I can hear the discussion in the Patriots front office now. “Downside? There isn’t one!”
Schadenfreude, for those of us who aren’t Patriots fans. But I can’t get smug. After all, I live in Washington DC, home to a football team whose name is so reviled, I won’t even use it. And their record . . . well, let’s just move on.
Risks can smack anyone in the head, even when you’re aware of them. For business developers, here are some different strategies for coping with risk:
- Add risk. New market development, new product launches, expansion of market boundaries. All of these diminish some risk, but introduce plenty of new risk at the same time. As Bob Thompson wrote on CustomerThink, “Unfortunately, many companies look at risk as something to be avoided. Which means they limit future opportunities as well.”
- Accept risk. Not every prospective customer will buy. It’s surprising how few companies adequately plan for this ubiquitous risk. But it’s table stakes for any company that intends to compete in a market.
- Reduce risk. Shorten sales cycles! Increase lead flow! Improve selling skills! Make the right sales hiring decisions! Monitor, measure and reward! There are many ways to reduce selling risks—or at least to create the perception they are being reduced.
- Eliminate risk. Some business risks, such as ethical impropriety or felonious behavior, can be so catastrophic that they must be eliminated.
- Transfer risk. Outsourced IT development. Outsourced sales. Consignment retailing. Third-party receivables collection. Many companies have been created for the purpose of absorbing risks others don’t want or can’t handle.
- Share risk. The idea that sustains product co-development between supply chain partners, and channel sales strategies.
Which risk management strategies are best for your sales organization? Likely, a combination of these. The ones you use depend in part on your company’s capacity to carry risk, or RBC (Risk Bearing Capacity)—a strategic differentiator that can’t be seen, felt, or touched. The reason that some companies can develop technologies to launch commercial rockets, engineer driverless cars, and compete for long-term government contracts, when others can’t.
While RBC is calculated in different ways, the common basis for the calculation is “how much risk the organization can bear before [it becomes] insolvent,” according to Carol Fox, the director of the strategic and enterprise risk practice at the Risk Management Society. Most companies don’t want to test that limit, preferring to keep it theoretical.
Whether the NFL can control the increasingly risky environment in which their teams operate has been the subject of much debate. But the Aaron Hernandez saga painfully demonstrates what happens when risks aren’t well understood and aren’t properly managed.