The high risk of low-risk behavior

"Necessity is the mother of taking chances."
-Mark Twain

Occasionally I encounter a motorist on the highway who is driving very slowly, some 20 miles per hour slower than the flow of traffic. This driver undoubtedly believes himself to be driving in a reasonable manner, equating his slow speed with safety. Unfortunately, he fails to recognize the greater risk of a much faster car plowing into him from behind. His slow speed has made his car into a barrier rather than part of the traffic flow, and yet he cruises on, oblivious to the squealing tires and honking horns directly behind him.

Is this really a safe practice? Not on the highways in Silicon Valley.

Likewise, many companies speak of innovation in their brochures, only to engage in what they consider to be low-risk business practices when developing a new product. Instead of innovating, they build a product very similar to their competitors', only marginally better or cheaper, perhaps with a few more features. There's a sense of comfort at many companies in this middle of the pack mentality. It seems safe — certainly safer than sticking your neck out and doing something different.

But is this really a safe practice? Not for companies in the software business.

The Larger Risk

Consider the risks of "playing it safe." If a competitor comes out of nowhere with a truly superior product, one that leapfrogs all of the other products in its space, including yours, you're instantly put in the position of playing catch-up on someone else's field, on their schedule. They're leading. You're following. You've lost control.

Meanwhile, your sales are likely to suffer while you're trying to catch up. After all, if your competitor's product is demonstrably better, it's going to be more difficult to sell your existing product to customers who can tell the difference. In some cases, you may be forced to cut your margins and compete based on price alone. Obviously, decreased sales and lower margins means taking in less revenue, which is hardly a low-risk proposition.

Compounding the problem, you also have a new, unplanned expense on your hands. Playing catch-up means increasing your development expenses unexpectedly, and usually by a lot, since you can count on paying at least double for any initiative conducted in crisis mode. This probably means getting approval from the "C-level" to fund the additional unbudgeted expenses, which will splatter red ink all over the monthly variance reports. This can be embarrassing, and tends to make the CFO and shareholders very testy.

Yet, given these high risks of playing it safe, many companies still try to rationalize their "blend with the crowd" approach. Here are a few arguments I've heard.

Mom's Favorite Argument

Last fall, I met with the Usability Manager from a leading eCommerce site. He argued against making their online purchase process more convenient for their customers, opting instead to require a lengthy registration process before allowing a sale. When pressed, his rationale boiled down to a simple observation: Everyone else was doing it, so it couldn't be all that bad.

Your mother knew that argument was weak when you tried it in grade school, typically firing back the time-honored counter-argument, "If all your friends jumped off a bridge, would you jump too?" It didn't wash in grade school, and it certainly doesn't wash now that the health of your business is at stake.

It's important to remember that the software industry is in its infancy. There are a lot of mistakes being made by software companies at all levels. The fact that many other companies are doing a particular thing doesn't mean that it's smart, right, or profitable. The dot-com implosion alone proved this point in a rather dramatic fashion.

Clearly, emulating the mistakes of others is not going to bring you success. Instead, do what you believe to be right based on an understanding of your customers, your capabilities, and your company.

The Copycat Fear

Several years ago we presented a product design to an executive of a business equipment company known for its long history of innovation. This executive challenged the "risky" strategy of making substantial improvements to their product with this question: "This design would certainly make our product stand out from the competition, but why should we build it? The other manufacturers will just copy it for their next releases anyway."

While it is true that other companies might have duplicated this company's successful product, this executive—apart from failing to respect his own company's innovative heritage—failed to understand three important points:

First, if you're making a product worth copying, you've given your marketing department a huge advantage. Your product will stand out from the crowd and your customers will have a clear, compelling reason to buy it rather than one from the other guys.

Second, if your competitors are copying your products, it means you're one step ahead of them. You're the leader, which gives you a level of control that industry followers will never enjoy. Your competitors can copy your product, but they can't copy the philosophy and process that led to your leadership in the first place. Not only does this look good in your marketing materials, it means that you don't waste time and energy playing catch-up. Instead, you can focus on the Next Big Thing.

Finally, the best way to beat out your competitors is to win before the race starts. Really good, innovative, useful products tend to inspire brand loyalty. I know people who wouldn't consider getting any car other than a BMW because of their high level of satisfaction with their current model. I see the same loyalty from users of Apple computers. Tellingly, neither BMW nor Apple commands this loyalty by copying products from other manufacturers.

What's the Difference?

A representative from a consumer PC peripheral manufacturer once asked me, "Why should we make our software better than the other manufacturer's software? If our software is no worse than theirs, who will know the difference?"

To me, this is the same as asking, "Why get out of bed in the morning?" or "Why bother doing anything of significance?"

Software companies should care about their products. They should strive for the highest quality possible at their price point. They should approach their products like a craftsperson who desires to build something truly exceptional, with meticulous attention to detail. They should sell products worthy of their customers' hard-earned money. But this isn't just about the deep personal satisfaction of doing the right thing—it's about good business practice.

In his book The Circle of Innovation, Tom Peters offers his favorite quote on this subject, from management consultant James Morse, who says, "The only sustainable competitive advantage comes from out-innovating the competition." Steve Jobs of Apple also knows this. "Victory in our industry is spelled survival," says Jobs. "The way we're going to survive is to innovate our way out of this."

Jobs should know. His company's colorful iMac computer sold over 6 million units, and inspired a staggering number of industries to sheath their products—including clothes irons and kitchen grills—in translucent Bondi Blue plastic. Equally important, Apple now has $4 billion dollars in the bank to help cope with the current recession, and, in the words of Time Magazine, "millions of fanatically loyal users who will give up their Macs only when you pry their one-button mice from their cold, dead fingers."

But Jobs doesn't see this kind of risk-taking innovation as a luxury to be enjoyed during boom markets. Rather than play it safe in a recessionary market, Jobs unveiled the successor to the original iMac recently, an innovative new design with a flat screen attached to an articulated swing arm. Of this risky endeavor, analyst Tim Bajarin stated simply, "Apple has another hit on its hands."

Take Risks. Please.

There's no denying that innovation can be risky, but not innovating can be even riskier. Resting on your laurels can cost you market leadership, financial security, and the loyalty of your customers. When the people who may buy your product are faced with a difficult—and expensive—choice, standing out from the competition is simply good business. As Will Rogers said, "Even if you're on the right track, you'll get run over if you just sit there."

References
Peters, Thomas J. and LeBaron, Dean. 1997. The Circle of Innovation: You Can't Shrink Your Way to Greatness. Knopf.