According to financial guru, Malay Shah, risk is the probability of the unexpected. The primary objective is to control your risk. This can be done by applying the formula below to a traditional risk matrix:
Shah explained that barriers to delivery are also risks. This applies whether referring to the customer, entrepreneur, or the investor. For example, a customer may care about quality, price, timeliness, and reliability. An investor cares more about rate of return, payback period, transparency, and economic development. Knowing the details surrounding these factors will aid in managing your risk.
Likewise, understanding the risk spectrum helps mitigate uncontrollable risk:
Telling < Showing < Repeating
Hypothesis < Intent < Revenue
Opinion < Data < Insight
This spectrum applies to almost every category of risk including: People Risks, Technology Risks, Operational Risks, Financial Risks, Market Risks, Competitive Risks, Legal/Regulatory Risks, Systemic Risks
Shah shared that the greatest difficulty is to determine your competitive risk. He encouraged attendees to make sure you know your competition and how your company is different. He then discussed personnel risk. It was an excellent reminder that founders can’t complete the entire skill set of strengths needed on a team. There should be a core team that covers all the bases. It is a huge risk not to have this in place. Each above mentioned risk was addressed during the presentation.
The Swerve audience was reminded that products don’t sell themselves, and that revenue comes from customers. The group was tasked with an activity to try to sell internet access in China using the top-down analysis to estimate the market opportunity and the bottom-up analysis to plan what they can expect to achieve as a startup. The risks with this activity were discussed as they relate to manufacturing, seasonal issues, service, commission, and forecasting pitfalls.
The key takeaways from the meetup were:
- Identify risks based on what you need to deliver
- Achieving milestones = reducing risk
- Developing your business model = managing risk
- Revenue comes from customers
- Identifying constraints helps you forecast
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