RISK RESULTS FOR YOUR STARTUP


Risks Summary

Explanation of quadrants and why it makes sense to prioritize and face risks based on their position in the chart. Explanation of quadrants and why it makes sense to prioritize and face risks based on their position in the chart.

 

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INTERNAL RISKS


Customer Risk

The customers and their problems are not properly understood, or the startup solution has not yet been appropriately validated with any customer segment. Reasons might be that user needs are poorly understood and/or the team is trying to add too many features at once, not focusing on getting the key function right. This risk can be compounded if the team doesn’t follow an effective product management process

Mitigation

Spend more time with your customers, refrain from building until you’re sure of what their true pain points are, respect the research methodology. Hire an accomplished product manager or train yourself into one, run frequent usability tests with users, iterate quickly to test features and get to a robust prototype to go to market quickly.

Links of interest
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Tech risk

The product may require a major technological breakthrough, or it may be based on a risky tech platform that could lose its competitive advantage quickly or swallow the startup’s space. Alternatively, the startup may require access to a data sources that are difficult to access, expensive or non-dependable.

Mitigation

Work hard on your tech vision so that it elegantly underpins your product vision, don’t commit too early to a given platform, avoid lock-in, be clear about what needs to be built in house and proprietary vs. outsourced leveraging the myriad of SaaS tools for startups, understand where the true value of the product and tech lies.

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Execution risk

In the worst case, the team takes forever to make decisions, can’t focus on the key issues, can’t say NO to insiders/outsiders or can’t sequence/prioritize tasks in the right order. The team does not show the ability to coordinate and pivot as appropriate or the ability to make quick and tough decisions.

Mitigation

Have the CEO repeat 1000 times: “My title is chief EXECUTIVE officer; my job is to focus the team on our traction.” More seriously, reflect on your execution method (perfect is the enemy of the good!), use best practices like OKRs, use your board as a focusing device and meet with them frequently. Understand that the broader you go, the less you achieve, so keep a limited number of open projects and priorities.

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Team dynamics and culture risk

At the end of the day, venture funders invest in entrepreneurs and managers. The team may not have the right skills, networks and expertise to succeed in this venture and execute the proposed business plan. Alternatively, the team constantly has founder disputes and friction that detract from execution and hurt morale. There may be toxic elements or more commonly, a need to replace founder and execs with more skilled individuals.

Mitigation

Have all founders follow vesting schedules with cliffs, be clear on the required skills and the gaps in the existing team, lean on your board for advice, assign clear team roles and ‘owners’ responsible for different tasks/areas of work.

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Fundraising risk

The CEO and wider team are not good at fundraising, don’t understand venture investors well enough or aren’t part of the necessary networks. The team also does not clearly lay out unit economics. Understanding CLV and CAC is essential even if it is theoretical at the beginning as it shows good understanding of the business and model and funding needed. Alternatively, the country or sector or the idea might be unattractive to the investors.

Mitigation

Find the best fundraiser in the team (hopefully the CEO) and train her properly on sales and venture deals, get a lot of help from your board, move to another market, try to diversify the investor pool (local vs international, impact vs. commercial sector expert vs. more sector agnostic etc.)

Links of interest
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Impact risk

For social ventures, the temptation to move upmarket and serve wealthier customers can be unrelenting. While that move may not threaten the business survival chances (it might actually enhance them!), impact investors and social founders/cultures may feel betrayed.

Mitigation

Bake impact deeply into the product, use a hybrid structure with a non-profit holding key IP or golden shares, insert clawback clauses in term sheets, constantly remind the team of the mission and vision, integrate it deeply into the DNA of the company.

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EXTERNAL RISKS


Macroeconomic dynamics risk

Even if there’s a great fit, the product may appeal to a market that is not big enough to sustain growth or deliver venture returns due to external forces (e.g., FX, political factors).

Mitigation

Ensure your value proposition resonates with a big-enough segment, estimate your Total addressable market (TAM) and your Serviceable Available Market (SAM) properly, following a bottom up approach, and follow a beachhead approach to enables easy jumps to adjacent segments. Be prepared to adjust as political or economic factors affect your market.

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Timing of launch risk

The company might be entering the market at the wrong time. If it’s too late, its lunch will be eaten by more advanced competitors. Too early and there will be no lunch for a while, so the startup faces an uphill struggle.

Mitigation

If the field already has many competitors, consider pivoting to differentiate. If you’re the pioneer, consider when the required elements for your growth (tech, user devices, user demand, regulations, ecosystem factors…) will be available and whether you can be ready and alive by then .

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Ecosystem Infrastructure risk

The company may need market infrastructure that’s not available (mobile connectivity, local hosting for servers, local financing for working capital, efficient shipping services…).

Mitigation

Ensure that all aspects of the market support the product you are trying to launch, and furthermore have a back-up plan in the event that regulations change (e.g., access to internet in areas where it may not be reliable).

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The startup may face difficulties from upcoming regulation or legal risk as it relates to their product, their operations, their recruiting, or their legal presence in a country.

Mitigation

It is critical to thoroughly vet the regulatory environment before going too far with a specific business model. Understanding the legal implications of each business model is critically important as legal battles can be costly and time-intensive.

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