Risk-Reversal Is Not A Good Strategy For New Businesses.
Don’t get trapped by this all-too-common advice.
What’s the worst business strategy in the world? Working for free.
What’s the second worst business strategy in the world? Risk-reversal.
(Especially for a new business.)
In case you aren’t familiar, allow me to illustrate:
Let’s say you’re a brand new marketing agency. You’re trying to land your first few clients, and you pull up the Twitter feed of your favorite influencer, who tells you that a great way to get new clients is to assume all of the risk.
“You want to make it a no-brainer for them to sign-up with you.”
So for example, if you were selling lead generation then you might tell a potential client: “If we don’t deliver 100 leads, you don’t pay, and we’ll refund your entire fee, no questions asked.”
It sounds powerful, right?
It makes perfect sense, right?
Except, for most businesses, it doesn’t.
“Except, for most businesses, it doesn’t.”
— James Maxwell
When it works, it really works. But for the vast majority of operators this is a huge, huge trap that isn’t discussed enough.
Here’s what this advice will likely accomplish, particularly for the beginner:
It will attract the worst type of clientele imaginable.
i.e. risk-averse, stingy, broke, micro-managers, etc.
It will set massive, unrealistic targets for said clientele.
The provider will be scapegoated or shamed by said clientele.
It will totally diminish the value of your service.
I repeat: it will totally diminish the value of your service.
It reduces you to a number instead of a trusted advisor.
Because the provider is new, they will fail to deliver.
Because they cannot deliver, they will get stressed out.
etc.
You get the picture.
Attracting The Wrong People.
Working for free and risk-reversal are two sides of the same coin. They both involve devaluing your work (and your business) to such a point that you run a huge risk of sending out a clear signal that you don’t trust yourself enough to deliver.
And in doing so, paradoxically, you will attract the type of clients that will definitely ensure you don’t deliver. Rather than making you look confident, if done incorrectly, these types of offers make you look desperate. Predatory clients can smell the desperation on you.
When you’re in business, especially if you’re a service business, it’s incredibly easy for a client to issue a chargeback. In many jurisdictions they have up to 120-days, and in some situations that can actually be 120-days after the service has been completed. Trust me: you do not want to create a one-sided agreement to attract people who will absolutely take advantage of the current climate.
High-performing, confident, wealthy, abundant people don’t need risk-reversal to feel comfortable working with a vendor.
High-performing, confident, wealthy, abundant people don’t need risk-reversal to feel comfortable working with a vendor.
Only desperate, broke, scarcity minded, predatory folks need risk-reversal to feel better about a deal.
For Most Of You, This Strategy Is Absolutely A Trap.
This may sound harsh, but I promise you, you’ll never hear from the vast majority of beginners who try this strategy because they don’t get anywhere.
Risk-reversal can be an excellent strategy for a mature, capable, effective business and skilled operators who understand how to demonstrate value; everyone else should stay far, far away.
If you can slap a massive guarantee on something, position yourself as a major value add and bring your client’s risk to zero, you will certainly sign a lot more deals than anyone else on the market.
However, the fact is: the overwhelming majority of businesses are not capable of driving massive results or delivering on their promises, and if they are, they will often be so stressed out, that it’s not sustainable anyway.
Moreover, they are not capable of demonstrating their value, because in the early stages, and without a stack of proof, they won’t value themselves.
Instead, new businesses should do the opposite.
Erect barriers. Add friction. Raise your prices. Deter clients from working with you. Ask if they’re sure. Tell them to think about it. As a business owner, take pride in your work and what you do. If you’re providing value, don’t worry about asking for value in return.
When you’re prepared to take that simple step: the difficult clientele we highlighted above will vanish.
When you’re prepared to take that simple step: the difficult clientele we highlighted above will vanish. Chances are much higher that they will intuitively recognize your business is not open to manipulation.
The type of clients you do want to work with, paradoxically, will be attracted by the barriers you’ve erected in front of them.
You’ll never sound needy or desperate, and that’s half the battle.
This also works because people want what they can’t have. By recognizing your own value and behaving accordingly, predatory clients are far less likely to engage with you and you’ll be able to drive better results.
This isn’t a gimmick by the way, it’s a philosophy.
Try it, see what happens.
Good luck out there.
Looking For More?
Check out this free sample chapter of our upcoming book: The Death of Average — How Tor Thrive In The Era Of Hypercompetition.
MXW Group: Think Big. Move Fast. Stay Focused.
We are a premium coaching firm that provides luxury coaching experiences for ambitious professionals to help them Think Big, Move Fast, and Stay Focused. We offer two unique 1-on-1 coaching experiences: MXW Confidant, a remote-based coaching retainer, and MXW Oasis, a personalized retreat at a luxury hotel/resort of your choice.
MXW Elite is a 100% confidential, remote-based luxury coaching service.
MXW Oasis is a one-of-a-kind, personalized, 1-on-1 luxury coaching retreat at a location of your choice.
Confidentiality Notice: At MXW Group discretion is paramount. Names and events in these stories have been changed where necessary to protect the anonymity of our clients while preserving the spirit of their accomplishments.
