Jumping Off the Cliff

Prague Leaders Magazine, November 2012

“Living at risk is jumping off the cliff and building your wings on the way down.” – Ray Bradbury

Jérome Kerviel had big dreams when he rose from the back office of the French bank Société Générale to become a warrant arbitrageur in 2005. Although he didn’t come from one of the elite French schools, he was determined to join the big leagues by proving his abilities as a trader.

As we now know, Kerviel’s risky speculations didn’t lead to the success he was hoping for. Instead, like many gamblers, the young Frenchman was undone by his ambitions.

Kerviel chased his losses, and continually increased the size of his bets to recover his losses, eventually spiraling out of control in one of the biggest trading scandals the world had ever seen. On October 24th 2012, a French appeals court sentenced him to three years in prison for his role, and upheld a 2010 decision that ordered him to repay his former employer €4.9 billion in civil damages.

The history of humankind is full of stories of people who risked it all for a chance to reach the stars. Some of those brave people, who chose to aim high, follow their dreams and push the limits of permissible risk, found great success. Others, of course, have found failure. Nevertheless, it can probably be said that the majority of the world’s greatest achievements would have never come to light had there not been someone bold and daring enough to “jump off the cliff.”

Howard Schultz, the chairman of Starbucks, jumped that cliff 24 years ago, when he resolved to recreate the Milanese coffee bar experiences he’d had in Milan by selling quality Arabica coffee at premium price… in the United States.

Since that time, thousands of Starbucks cafes have been opened all over the world, including the first one in the heart of Prague’s historical center, in 2008. Despite the controversy and legitimate concern this generated in the Czech Republic because of the dominance of the famous brand, it also reminded us that, with 19,972 stores in sixty-one countries, Starbucks, the second largest retail chain after McDonald’s (68 million customers per day in 33,000+ restaurants worldwide), has become an American institution of international proportion.

But Schultz’s boldest idea, and one that was called outright crazy by many, came when he decided to open a new Starbuck’s cafe opposite an existing location. This decision was made at a time when the company was losing $1.2 million annually. Nevertheless, on March 2, 1994, the dual-Starbucks intersection opened for business, in Vancouver, Canada.

Though it had been expected that the two cafes would cannibalize each other’s sales, each one mostly attracted different crowds and soon these two stores became the best and second-best performing stores in the chain. The novelty of the idea was that each store was just 15 meters from the other. Schultz saw something no one else saw on that Vancouver street: each corner of the intersection had its own unique traffic flow. Today, near Times Square in New York City, one can find 12 different Starbucks stores within a three-block radius.

Certainly not all risks lead to the scale of the financial damage Société Générale faced in 2008, or the phenomenal success Starbucks has experienced over the past decades. Still, risk is a natural part of life and necessary for our growth. Fortune very rarely smiles on those of us unwilling to risk something.

While most of us will never experience the epic highs or lows associated with the risks taken by Howard Schultz or Jerome Kerviel, we can still benefit by jumping off the cliff. Not only does risk push us to test our abilities, it also rewards us with “building our wings” on the way to success.

Testing Our Abilities

As Friedrich Nietzsche once wrote, “What does not destroy me only makes me stronger.” Risk taking is rarely a comfortable pursuit. It inherently produces uncertainty, which most of us would prefer to avoid. At the same time however, regular risk taking helps build inner strength, resiliency and an ability to cope with a variety of circumstances. By producing a certain amount of stress that pushes us to develop our abilities and self-confidence, taking risks allows us to stretch our limits to grow and to improve. And research has shown that a moderate amount of stress actually does help improve performance.

Of course, we shouldn’t get in over our heads. Jumping off the cliff without the necessary skills and know-how can put us, as well as others, in a dangerous situation. The challenge is to be aware of our limits and the consequences (positive or negative) associated with our actions, and be willing to accept those consequences for the promise of a greater reward.

Exhilaration and Reaping Rewards

In his book, Human Motivation, R.E. Franken reported that “the more fear we feel in anticipating a difficult task, the greater the subsequent elation is when we have been successful at that task.”

According to Jérome Kerviel, after successfully earning €500,000 in profit in initial trading with the company Allianz in 2005, he commented, “I had mixed feelings, because I was proud of the results, but surprised at the same time. That produced a desire to continue. There was a snowball effect.”

As Kerviel’s case clearly demonstrates, once he had mastered a stressful task, he sought out greater and greater challenges in order to experience the same emotions. As his skills and knowledge improved, so did his optimism and confidence about trading on a large scale.

Three years after Howard Schultz bought Starbucks in 1987, the chain consisted of eleven stores; by the end of 1991 there were 115. Today there nearly 20,000 stores, and the company plans to open more than 1300 new stores in its fiscal 2013 year, up from 1069 this past year, with more than 500 of those intended in the Asia-Pacific region, more than half of them in China.

But Starbucks’ is not resting its reach only on its ability to open and maintain branches world-wide. The company also introduced its own single-serving brewer this year, the Verismo; and is rolling out a test of wireless charging in Boston, a feature it plans to add to its free Wi-Fi service, as a way to attract hip mobile workers.

Today, coffee is the second largest traded commodity in the world, just after oil. With Starbucks opening stores faster than it can come up with new coffee variations, jumping off these other cliffs are ways the company expects to maintain growth and increase revenue.

Taking risks is not only a natural part of our lives, it also contributes to our growth and the development of new skills e.g. building our wings. It is an approach that helps us develop an awareness to respond and to adjust to the ever-changing aspects of life. Every situation provides an opportunity to take a new risk.

As we go through life, instead of trying to distinguish the good risks from the bad risks, we should use risk to explore the limits of our dreams and our potential.

With patience and practice, our strength and ability to identify the advantages and the disadvantages of each situation will improve over time. And as we continue to test our abilities through challenging situations, we will feel more comfortable “jumping off the cliff” in our lives and increase the chance to “ build our wings on our way down.”

Originally published in Prague Leaders Magazine.