risk vs reward see-saw

Risk & Assumption: Making An Ass Out Of U and Me

Gee Ranasinha Sales

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“Assumption” and “risk” often go hand-in-hand. It’s like yin and yang, or whether the glass is half full or half empty.

Salespeople are taught of the dangers of assuming something in business. To “assume” something, they’re told, makes an “ass” out of “u” and “me”.

By assuming a particular intent, outcome, situation or interaction you are creating an illusion for yourself that you regard as fact. As a result, you are ignoring the potential risks associated with such a decision.

I talk with many business owners who think that they have a handle on their customers’ wants. Not from research, mind you. Not from from actually talking with customers and prospects, or from observing how changes in the industry and technology may influence buying behavioral trends. But from what they would call their “gut instinct” – and what I call “risk-prone assumption”.

The Risks – And Rewards – Of Making Assumptions

These companies rely on assumption to build their business. “My customers liked it when I made a red version of my widget – surely they’re going to love it if I make a blue one, right?” Products or services get designed and launched. Expenditure is made – directly or indirectly – on marketing, promotion, human resources, service, support, distribution and so on. All based on assumption, on what is little more than a hunch.

However “assumption” on its own isn’t necessarily a bad thing – as long as it’s mitigated with identifying, assessing, and managing the risks associated with it. You could even say that once you know the risks involved, the assumption stops being an assumption.

When I talk about risks, I see them coming in three main flavors:

Risk Number One: “Knowledge, Preparation, Cause and Effect”

This is what many people would call “Risk Management” in the traditional sense. It’s the systematic research, definition and prioritization of known risks that have been assessed as having a detrimental impact to the project. This sort of risk is the stuff that you can prepare for – checking the likelihood of rain on the weekend that you’re planning a barbecue, for example. It’s having a Plan B – or series of Plan B’s. There’s an ISO standard (ISO 31000) that defines it as “the effect of uncertainty over objectives”, which I think is kind of cool.

Risk Number Two: “Woah – What Just Happened There?”

This is a risk that you couldn’t have possibly foreseen – it appeared, like a bolt from the blue, out of nowhere. It’s what Donald Rumsfleld meant when he talked about ““unknown unknowns”.”There’s great book called The Black Swan (which has nothing to do with that movie about ballet dancers, by the way) that’s all about these types of risks. An example of a Black Swan? It’s when you’ve spent a dumper-load of money to exhibit at a tradeshow, only to have 9/11 happen a day into it (as happened to me).

Risk Number Three: “But I Didn’t Think It’d Be A Problem!”

This is the one that I’m talking about. This is the risk that, actually, you did know about. However, you didn’t consider it as being a risk because you made an “assumption” along the way. “Hey, I’ve never had a flat tire in the past five years. Why should I check the spare on this 1,000 mile road trip I’m about to make?”

The issue with Risk Number Three is that of underestimating the gravity and implication of a risk based upon an assumption that hasn’t been tested and researched. Why hasn’t it been tested? Because you don’t think it’s that big of a deal to be worth considering.

The business world is littered with companies – and entire industries – that have been decimated by people’s ignorance/assumptions:

  • Kodak invented digital cameras, but sat on the technology for fear of losing revenue from their film-based products and services.
  • With their dominance and understanding of the personal music player market, as well as their existing media publishing interests, Sony should have made the iPod – but didn’t.
  • BlockBuster based their business decisions on the premise that people would always go to bricks-and-mortar stores to rent videos and games.
  • Look at the music or publishing industries today compared to a few years ago. Not a single one of them thought the risk they all saw coming was going to be that big of a deal.

Before you start building the next color fax machine, CRT television, or incandescent light bulb, draw up a list of the key assumptions you’re making.

About the Author
Avatar for Gee Ranasinha

Gee Ranasinha

Gee Ranasinha is CEO and founder of KEXINO. He's been a marketer since the days of 56K modems, lectures on marketing and behavioral economics at a European business school, and was noted as one of the top 100 global business influencers by sage.com (those wonderful people who make financial software).

Originally from London, today Gee lives in a world of his own in Strasbourg, France, tolerated by his wife and young son.

Find out more about Gee at kexino.com/gee-ranasinha. Follow him on Twitter at KEXINO, on Facebook at facebook.com/ranasinha, or on LinkedIn at linkedin.com/in/ranasinha.


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