Identifying and addressing risks in business nbi 2013
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Identifying & Addressing Risks in a Business
NBI 2013, IIM B
http://linkedin.com/in/thiyagarajan
Thing about Startup is
Problem Uncertain
Solution Uncertain
Is this the right team to build this ?
Will the Impact happen ?
Customers
Stakeholder
s
Society at Large
"A startup is a human institution designed to discover & create a business under conditions of
extreme uncertainty"
- Steve Blank
Also known as Risk
Uncertainity != RiskBut
Risk – a distant cousin of uncertainty
Risk vs Uncertainity
Risk - Known Unknown
Outcomes unknown but modeled through a probability distribution
Risk
A treacherous expedition through a previously travelled
path
Uncertainty - Unknown Unknown
To boldly go where no man
has gone before
Discovering Unchartered Territories
Startup Big Business
IdeaProblem/Solution Fit
User/Experience Fit
Product/Market Fit
Business Model/Growth Fit
Seed/Angel Series C/DSeries A Series B
Uncertainty Decreases
Risk Decreases
Stages
Humans terrible at handling both
Great Entrepreneurs stand out because of their
Decision Making in opaque conditions
Mitigate Risk
*Mitigation – Reduce Impact
Assess Potential Impact
Rank based on Negative Impact
Managing Uncertainty
Learning Trial & Error(small) Experiments
Change goals & course as you go
Selectionism Experiments
Pursuing several approaches in parallel to see what works
best.
Broad Types of Risks/Uncertainity
Technology Uncertainty/Risk
– Can it be built ?
Product Uncertainty/Risk
What use case is most important ?
Execution Uncertainty/Risk
– Can you get it done ?
Customer Uncertainty/Risk
– Will customers pay for it and recommend ?
Market Uncertainty/Risk
Aggregated Customer Uncertainty/Risk
Regulation Uncertainty/Risk
Since Resources are Limited
Time MoneyEnergy
Supporters Patience
Order Matters
Market Risk
99 % of the case
Limited Resources
Removing Tech Uncertainty/Risk
Removing Customer Uncertainty/Risk
Removing Product Uncertainty/RiskRemoving Execution Uncertainty/Risk
You Run out
Rank based on negative impact of these Uncertainty/Risks
Address Customer Uncertainty/Risk
First
Beware of Bias
HindSight Bias
Knew it all along effect
Overconfidence Bias
Not knowing limits of one's knowledge
Sampling Bias
Intuitive judgments are dominated by sample
proportion, and not by sample size.
Many more human bias ?
Don’t trust yourself ?
Very Demotivating
Intellectual UncertaintyPsychologically Certainty
“A true scientist believes in a model/theory enough to continue to be motivated to work on it but questions
it when the observations shows differently”
- Richard D Hamming
A STRUCTURED APPROACH
ZOOMING ON CUSTOMER RISK
Business Model Canvas
BMC is the Balance Sheet of an Idea
Business Model Canvas (BMC)
• A snapshot of your business model• Covers all aspects of your business• All of the stated are opinion, guess,
assumption• Need a way to reduce unknown in
each block
Startup Big Business
Uncertainty Decreases
Risk Decreases
Stages
At a given point in time
Only One Risk/Uncertainty that Matters
Startup Big Business
Uncertainty Decreases
Risk Decreases
Stages
experiment to learn
experiment to validate
Go over other sections in BMC
BMC zooms customer risk
Similarly Other risks
– Technology, Product & Regulation
Finally Next Big Idea
Cross Chasm of Unknown & Unprovable
Embrace Uncertainity
Wade through skillfully
Thanks