New ventures often have to take-on several risks. In fact, choosing to start a new business in a relatively new industry with the hope of serving new customers is a risk in itself. If a start-up entrepreneur attempts to eliminate them all, the product/service might never get to the market. The key question is “What’s the most significant uncertainty?” Answering this question will lead to three broad but inclusive categories: deal killer risks, path-dependent risks, and easy win or high ROI risks.
Deal killer risks: As it can be insinuated from the name, these are uncertainties that if left unresolved could undermine the entire venture. They often take the form of unwarranted or unexamined assumptions about the premises underpinning the venture. There is this story that was told of a startup satellite radio company aimed at consumers in developing countries.
The backing premise of the venture was that satellite broadcasting technology would be a relatively cost-effective way to bring mass media to this markets that lacked even basic infrastructure. Sound interesting right? Yea it ought to be! Their Market research suggested that a huge latent need would turn into a booming business. The company expertly negotiated broadcasting licenses in several developing countries and proposed to solve some technological challenges. Nevertheless, the venture imploded. What was the problem? As it turned out, the demand identified by market research depended on customers being able to access the broadcasts through low-cost radio receivers- which turned out to be impossible. The receiver required several features that made it unaffordable in most of the developing countries. Having failed to identify this fatal vulnerability, the company incurred an irredeemable loss.
Path-Dependent Risks: New ventures that never has to confront strategic bridges on their road to success is rare. Path-dependent risks arise when pursuing the wrong path would involve wastage of time and money. The uncertainties are dominant in your chosen industry and providing answers to them will determine success.
Easy win or High ROI risks. In simple terms, this refers to risks that are cheap and quick to resolve, applying a cost-effective approach or experimental Return on Investment (ROI) can provide ample means to solve this form of uncertainty.
Be Judicious with Capital: The future of a start-up venture in a market competition with a large Corporation is often dependent on how wisely the startup entrepreneur can maximize resources. On the other side, it is easier to learn from a business mistake that only limited capital is involved than the one you made loosing all your life savings. At the start of a new venture, the only thing you are 100% sure of is your initial strategy that is probably partially right and wrong. Research conducted on 500 entrepreneurs found that most successful ventures have redirected their strategy at least five times before they hit a solid growth trajectory. If you have spent all resources in the first direction, you’ll compromise your ability to figure out what is wrong or pay a high price when you eventually figure out.
Attach to the market, not the idea: Most startup entrepreneurs fail for being too overly attached to their idea. Most likely they see much more than what every other person can see about the potentiality of the project because they are passionate and optimistic about their chances. But more importantly, an entrepreneur has to connect with his customers and the peculiar need of the market to have any chance of success. Customers often decide the future of a project than the strength of the idea and the faster a startupper realizes this, the better.