If you run a business, ROI (Return on Investment) is no doubt constantly on your mind. It's certainly an important metric in many endeavors, but it's not the be-all and end-all of business success. In fact, some might say that you should be looking at the "RONI" instead.
RONI refers to the “Risk of Not investing,” as Steve McKee, President of McKee Wallwork + Co., put it in an article at SmartBrief1. McKee's point is that not everything is measurable, but that doesn't mean you should shy away from it. Doing so can be even more detrimental to your business than trying an idea that didn't pan out.
In other words, you're taking a risk by not investing in areas that can make your business more valuable, even if they don't produce a quantifiable ROI yet.
"Choosing to devote resources to something new may be expensive, but choosing to not invest has a cost as well," McKee said. "How valuable would Apple be if the company hadn’t invested in the form as well as the function of the iPhone? How valuable would Google be if it hadn’t invested in user experience as well as its search algorithm? As these and other leading companies demonstrate, successful branding can generate ROI over the long term of 10X, 20X, or even 100X or more. Trying to calculate that up front is impossible."
Anyone can give the go-ahead when ROI is certain, McKee pointed out. but a real leader is able to make decisions when the answer isn't as clear, leading the business into valuable opportunities. It may be riskier to not invest in areas that can fuel growth and establish your business as an industry leader.
The main point is that there are things that unquestioningly have value, even if that value can't exactly be measured. In fact, some would say that if the metric isn't money, ROI simply can't be measured.
Jason Falls at Social Media Explorer once illustrated2 this by breaking down the ROI equation (the amount of money you made minus the amount of money you spent, divided by the amount of money you spent). It's an equation, and there are simply parts of business that cannot be plugged into this formula.
Falls was talking specifically about communications (an industry that has long had a hard time letting go of the ROI obsession), but it can be applied to anything that clearly has value, yet has no clear way to measure it. It's an ongoing dilemma in the era of social media and digital marketing.
For people who have to report to higher-ups, it can be very hard to get the point across. If you have to answer to the CEO, the RONI principal can be hard to sell. If you are the CEO, you should put some thought into the risk that comes with not investing and the notion that there is value (that is not directly monetary) to be gained from certain efforts. Think about the big picture and not just about short-time financial gain. You're in this for the long haul.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.