In business, weighing the Risk-Reward Factor reminds us to not pull the trigger on a critical decision without making sure you stand to gain (reward) more than you lose (risk). It’s a balancing act.
That’s not my management or mentoring style. For me, Risk leads to Reward. Take a stand to do what you believe, and then stick to the game plan!
I speak from experience. One example in particular during my career proves the point in the extreme.
You can read the full story in my book Fisch Tales: The Making of a Millennial Baby Boomer (ForbesBooks, 2019), but I’ll quickly share the highlights with you here.
In the book, I recount that, during my tenure as the CEO of fast-fashion retailer rue21, the Cotton Crisis of 2011 hit the market like a ton of bricks. It drove up cost of goods, sending many retailers into a tailspin over how to handle the price increases without alienating customers. They ended up both raising their retail tags, then slashing prices across the board to mask the increases. As you’d imagine, their profitability was pulverized.
No Crisis Here
At rue21, I was adamant that we would not react to the Cotton Crisis by going into crisis mode, as our competitors felt forced to do. We were one of the only retailers to maintain prices.
Instead, we held our ground with our suppliers. We told them we could not pay prices higher than what had been the going rate for us. I was putting it on the line and was not going to back down.
We stuck to our everyday prices for most of our inventory, while discounting selected merchandise categories. By not chasing added revenue per transaction, we would have to drive more transactions.
We were a public company, and that strategy made Wall Street nervous. In November 2011, I had promised investment analysts rue21 would have a solid holiday season that would justify our healthy stock price. Again, I was willing to take that big of a risk.
As Christmas neared, our comp store sales (a key indicator that compares the current year’s sales period with the prior year’s) was down 10 points from 2010.
My confidence in our bouncing back was so unshakeable that I was willing to double down on my risk-taking. For an investors conference in January, I had requested a high-profile presentation perch immediately after market darling Lululemon, which had the honor of opening the event.
Imagine a lesser-known, new singer asking to perform right after Beyoncé. That’s essentially what I was volunteering to do.
At the conference, it got to me through back channels that one of those investors had said that he would “s**t a gold brick” if rue21 met its stated financial goals for the holidays.
Let the Bricks Fall Where they May
The night before my presentation at the investors conference, by sheer coincidence, I found myself at the same group dinner as that skeptical investor. What he didn’t know at the time was that, the next morning, I was going to tell him and the several hundred other investors in the audience that rue21 did meet its numbers, as I had promised.
Without upstaging my speech the next morning, I had to let the investor know in my own playful style that he was mistaken in doubting our performance. I considered it my duty to present him with a solid chocolate gold brick!
All the risks I took during the Cotton Crisis were well worth the final reward: after my speech, rue21’s stock price skyrocketed 25% overnight, causing other stocks to ride our coattails in a bullish stampede. Amazingly, we had moved the stock market! It’s a day I never will forget.