The trap of “status quo risk” vs. “change risk”
When staying put is the most dangerous thing you can do
Human nature is to fear risk. We abhor it. Almost as much as we loathe change. In an evolutionary ideal world, homo sapiens finds contentment in going about our merry business the same way, day after day, safe in the knowledge that all is well with the way things are. Because, so our reptilian brains like to figure, if things worked fine yesterday, they’ll continue to work fine tomorrow. We find this delusion instinctively comforting. In contrast, when forced to contemplate change, our minds naturally switch to fight-or-flight mode. It activates the amygdala in our brain, which processes fear, anxiety and stress. At a core neurological level, thus, we respond to change the same way we respond to conflict. That means that while many of us ultimately embrace change, we are, deep down, hard-coded in our bias against it. And that’s a huge problem for growth-stage ventures.
Being a leader is about managing risk, and orchestrating resources around risk in pursuit of growth, profits and impact. Every strategic and operating decision involves risk: what markets to exploit, what products to launch, people to hire, pricing to set, marketing moneys to expend – or not. Get these calls right, and the venture might flourish. Get them wrong, and it could be lights off at month-end. It means that we typically think carefully about most of the “active” decisions we make, and we tend to arm ourselves with an array of analytical tools to help those active decisions. However, we tend to pay much less attention to “passive” decisions, ie to the “status quo” preservation of continuing as before – and few are the analytical tools devoted to challenging regularly whether carrying on is at all the right thing to do.
Worse, we tend to think of staying put as not making any decision at all. That matters, because many organisational structures punish bad decisions, but ignore the consequence of not making a decision. Opting for change represents a discontinuity, a single point of before-and-after that could be traced back to us if things go wrong. Carrying on as before, however, creates diffused responsibility, and (in our minds) a notably absent hook on which to hang blame.
So: take a neurological fear of change, add a desire to avoid blame, throw in thinking of passive decisions as not being decisions at all, and mix in a good dose of sunk-cost fallacy, and you have a huge, natural human bias in favour of keeping the status quo - and believing it carries less risk than embracing change. But that’s wrong: change does not inherently carry more risk than the status quo, and often the only way out of a dead end is to call it as such, and favour the risk of the unknown new, over the inevitability of failure that is the well-known old.
Time and again at The Craftory we come across ventures that doggedly continue as before instead of pivoting to new ideas, processes or people, not because the solution lies in doing more of the same, but because they wrongly assess the risk of change to be much higher than the risk of ploughing on as before. It’s a deadly logical fallacy.
Change is, of course, not an answer in itself. It needs to be the right change, effected with the right skill, at the right time, And many a fool has thrown out babies with the bath water. But not making a decision is in fact making a decision in favour of the status quo, and that may well be far riskier than opting for change. Leaders will be wise to reflect on both their personal and their organisation’s biases in this regard.
Ernesto Schmitt is co-founder at The Craftory, the progressive investment fund on a $550M mission to back the world's boldest consumer brands.
