A rocket-propelled growth trajectory creates a “siren call” to investors and garners predictable and less predictable media comment. Executives ride the bandwagon of super valuations (fame, inflated bonuses, celebrity) but all too often the focus on dramatic market expansion and top line growth outpaces risk mitigation initiatives (the boring stuff). Heat melts the shell of the rocket on re-entry and the business becomes highly vulnerable.
This past week, Airbnb came in to sharp focus with me. (1) A European CEO of a “bricks and mortar” global serviced apartment business pointing out that Airbnb is flagrantly allowing its’ hosts in many key European gateway cities to run full-time hospitality businesses (83,000 room listings in Paris) and (2) Personally experiencing their underwhelming response to a cyber hack on my own Airbnb account.
My observation is Airbnb are playing too fast and too loose. They are tripping up on common sense responses to foreseen risks (cyber hacks, hosts flouting local trading rules), not just unforeseen risks. I don’t believe they are alone, there are hundreds of “celebrity” high growth businesses, whose risk mitigation strategies are being lapped by their growth plans.
I am all for disruptive businesses helping raise the levels of customer service. That is capitalism. No business or industry has a “right” to survive. What isn’t acceptable is when a business is acquiescent or adopts approaches (cyber hack) that are so inadequate that trust and integrity is destroyed. Are management asleep while cyber thieves roam freely in their booking system, setting up fake bookings, lifting credit card information, conversing brazenly with hosts and potentially putting “hosts” in physical harm’s way with bogus guests? Are their customers solely responsible for alerting Airbnb to breaches and mitigating the immediate risks (financial theft, loss of personal data, potential physical harm to hosts)? Should this matter to investors?
Yes, if you are an investor for whom reputational risk is equally as important as financial risk.
There are plenty of disruptive businesses (Ryanair), where executives have assailed their competitors, regulators and their customers for years while the growth trajectory dramatically outpaces the risk mitigation strategies.
The difficulty arises when growth slows, investors ask “why”?
Businesses aren’t in existence to be liked, they are in business to be respected. If you don’t believe that look at Apple, GE, Singapore Airlines and Virgin. When respect is destroyed by leaders failing to prioritise managing risk effectively, customers, shareholders, employees and business partners walk. No one individual or brand is insulated from that certainty.
© James Berkeley 2017. All Rights Reserved.