The three most important factors in creating a business? Risk, risk, risk.
If you try one, JUST ONE, thing that is “lean startup-ish”, try thinking about your startup purely in terms of risk. Sure, Eric Ries taught us about validated learning and Ash Maurya has shown us how to learn from problem interviews and solution interviews. There are lots of tools out there for the lean startup crowd. But the question remains, how can I get started?
By focusing on risk. The principle that both of these entrepreneurs share is that a startup must work hard to minimize risk. Validated learning, customer interviews, lean canvases, innovation accounting…in the end, these are all tools for reducing risk in a startup. Here’s why: the biggest risk in a startup scenario is that we’re DEAD WRONG about our idea and its place in the world. So tools are invented to keep ourselves accountable to the real world.
I’ve been recently pursuing an idea to help K-12 teachers communicate better with parents. I don’t have 40 hours a week to spend on this, and it’s a one man team until there’s validation of the idea. As a result, I need a simple, clean plan for testing my idea. Here’s the process I followed:
Brainstorm Risks
There are a couple facets to my app: it requires parents to sign-up, teachers must produce content, and schools need to pay. Based on these few facts, I came up with the following list of risks:
- Parents and teachers must find value in the app.
- Schools must be willing to pay for the app.
- Parents must voluntarily sign-up to receive communication.
- Teachers must be willing to try the app.
- Schools/teachers must populate the app with student data.
Prioritize the Risks
I then prioritized the risks based on two factores: the degree of risk and timing. The riskiest items must be worked on first. But just as important, I needed to account for timing: which risks do I have the resources to tackle NOW? Based on these two questions, here’s the prioritized list:
1. Parents must voluntarily sign-up to receive communication. (There’s no point to the app otherwise!)
2. Parents and teachers must find value in the app. (Who cares who pays or how many teachers try it if no one values it?)
3. Teachers must be willing to try the app. (I need teachers to voluntarily start using the app.)
4. Schools must be willing to pay for the app. (Extremely important! But I want to test the product before I have to wait 3 more months to get product feedback again.)
5. Schools/teachers must populate the app with student data. (Eventually, but not NOW, I need student data to be populated without me spending hours prodding teachers to do it.)
Often times, the greatest risks are that you’re building something people value and that people will pay for it. Or maybe you’re inventing new technology, and the risk is that it can be done affordably. Or it could be that you need to secure patent rights. But, SaaS products (software as a service) tend to see the same reasons for failure: a poor value proposition or insufficient revenue.
Create a Plan to Mitigate the Risks
In my most unemotional state, I can now view my business as a combination of those 5 risks. If I’m able to mitigate them, then the business should succeed and the money should roll in. But, how do I work towards eliminating these risks?
This is where your planning powers play a role. You must make predictions about what to expect if you’ve effectively mitigated a risk. For example,
If I can onboard 25% of parents for ONE class at ONE school, then I am confident enough to move on to the next risk.
Here’s the kicker: the first few months are more about instilling confidence in my idea rather than scaling a real business. That’s why the 25% number is fairly low and I’m only testing with ONE class. If I can’t meet this challenge, then I need to reset, find a new class, and/or improve my onboarding process.
My second risk is tested in this manner:
If teachers send 20 communications per week to parents, and parents read 75% of them, then I am confident enough to move on to the next risk.
And so the pattern continues, until I have enough confidence to take the business to the next level…












