An Introduction to Risk & Uncertainty

A significant challenge in business, and life, is that despite all of the information we have at our disposal, it remains virtually impossible to know what the future holds. Even with all the investment in, and progress that has been made, in the areas of Artificial Intelligence (AI) and Machine Learning, our ability to reduce uncertainty remains one of humanity's most vexing problems. From a business perspective, in our collective pursuit to reduce uncertainty, an interesting dichotomy becomes evident.

First, it appears that we do not have a strong understanding of uncertainty. Like gravity, uncertainty is ever present, seems simple, yet it is maddeningly difficult to fully embrace.

Second, is that the most profitable opportunities in business only exist in circumstances where the outcome are the most uncertain. Take, for example, Facebook and Twitter. While in hindsight it is easy to see the power of social media and social networking, in 2004 when Facebook was founded and 2006 when Twitter launched, no one could have imagined the global influence these two companies would achieve or the incredible wealth (over $550B in combined market capitalization - Q3 2019) they would have created.

To build a framework upon which we can begin to develop an appreciation of uncertainty, it is helpful to understand that while risk is an inherent component of uncertainty, risk is not a synonym for uncertainty.

In "Risk, Uncertainty, and Profit," economist and author Frank Knight explains in situations where it is possible to know the all (or most) potential outcomes and their odds in advance we are experiencing risk.

To oversimplify… When insurance companies and their armies of actuaries evaluate risk, they effectively know all of the possible outcomes and can attach odds to each outcome.

Genuine uncertainty occurs when we do not know the possible outcomes, or their probabilities, in advance. The more complex the system, where many inputs and outputs are interacting over time - for example, macroeconomics - is where true uncertainty is manifest.

Knight expresses that real opportunities for profit are present only where true uncertainty is present. Therefore, if we desire the most profitable opportunities we must not only deal with true uncertainty, we must seek it out.

Confronting the challenge of uncertainty

When uncertainty prevails, the time sensitivity of some of your customer's decisions becomes increasingly critical. You may experience a reduction in decision cycles if your product or service can be positioned to hedge against future change or to take advantage of the current economic environment.

As it becomes harder to identify the future benefits, and investment hurdles become more challenging to overcome, increased pain is required to trigger action, and more senior people become involved in the decision process, causing time-to-decision to increase.

While there are warning signs on the horizon, we likely remain in a positive global economic climate. This circumstance indicates that for many companies, fundamental business drivers, such as population growth and urbanization, are trending up.

Decision-making criteria will change

Within customer organizations with well-defined procurement processes, sets of decision-making criteria are in place to evaluate and select alternative solutions that can meet their needs. Increased levels of uncertainty will cause the relative importance of these criteria to be adjusted.

Keep the competition in your rear-view mirror

Sales leadership must always maintain good situational awareness to stay ahead of trends within their respective industry. The most successful sales leaders are the ones who bring forward-focused thinking into the entire sales process. To fully leverage forward-focused thinking, sales leadership:

• Always knows the market and is constantly looking to spot the trends.
• Invests time and resources ahead of demand.
• Balances process, priorities, and productivity.

Conclusion

Success in a world where change is constant, prospecting is challenging, and uncertainty is ever-present, demands forward-focused thinking from all salespeople. It is essential to develop the skill to identify and leverage the value propositions that will enable your customers to addresses the risks and the rewards of making a change when confronted with uncertainty. The objective is to normalize risk, such that the benefits of change outweigh the perceived short-term risks.

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About the author:

Tal Golan (@talgolan) is the Chief Strategy Officer @ Verb Technology Company, Inc.