Henry Ford refused to add a new model to his line-up of cars. The Model T came with a guarantee ROI. Investing in new models, more colors (the Model T cam in black), or even new features seemed too risky to Ford.
What Ford steadfastly denied—the very essence of his denial—was that despite making the same product in the same way, his company was headed in the wrong direction.
Tedlow, Richard S. (2010). Denial: Why Business Leaders Fail to Look Facts in the Face–and What to Do About It (Kindle Locations 339-340). Portfolio. Kindle Edition.
Ford Motor Company nearly went out of business for lack of innovation.
The Quest for ROI
Are you tired of hearing about “proven ROI?” I read in magazines and hear it in interviews. “We’re only making business investment with proven ROI.” As if 20 years ago, companies bet the plant in Vegas every Saturday.
Sounds great. Makes investors happy. And it’s either a lie or an indicator of pending doom for the company that practices it.
What Is Guaranteed ROI?
Guaranteed rates of return come only from super-safe investments, like ordinary savings accounts or certificates of deposit or AAA bonds. Have you checked the interest rates on those things lately?
Are you a manager who’s looking for investments as safe as AAA bonds? You’re not a manager; you’re a conservative investor. Fre all your people, sell all your assets, pay off all your debt, and buy AAA bonds.
What Is Business?
The purpose of business is not making money, but making money is a necessary by-product. Business exist to fill a void and to make life better. People will pay a premium for better lives, and that premium is your profit.
Now here’s the secret: Figuring out what makes people’s lives better at any moment requires risk. Risk requires letting go of guaranteed ROI. If you’re in business, you’re in the business of taking risks. Do your job or give the corner office to someone who will.
GDP – ROI = ZERO
The economy at large is yielding the equivalent of a 3-year Certificate of Deposit.
Yes, the government’s refusal to deal with debt scares business and strangles growth. But government is not the only problem.
Business leaders fail us every time they demand guaranteed rates of return. The reason annual GDP growth is about 1.8 percent is because the men and women in the corner offices are afraid to do their jobs. They’re afraid to take risks and improve lives. They feel more comfortable earning 1.8 percent on a CD than on taking a risk with a new product or service.
Not only do business leaders distrust the government and their employees, they distrust themselves.
How It’s Supposed to Work
Business is hard work. Managers are avoiding it.
To grow and prosper, businesses must try things. They must measure things. They must fail more often than they succeed, but their successes pay dividends many times the cost of failure.
Those investments in trials cost money and cannot be taken lightly. They most have some hard numbers behind them.
Demanding a guaranteed return is the opposite of risk, and the actual return is the opposite of profit.
Posted on July 16, 2011
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