identifying and addressing risks in business nbi 2013

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