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Risk Management

As a startup founder, learn how you can think about risk and how you can address it.

Learn how you can leverage and manage risk with small bets to increase your chances for success.

Another important aspect of a strong founder's mindset is understanding how you think about risk and how you begin to address it. One characteristic of risk in a startup and product is that it builds over time. Every decision you make, every answer that you get to a question, is either getting you closer to a sustainable business or further away.
And so, as you think about risk, there are two ways to approach it.

There's one way, which is going big - taking one big swing, betting the farm. We've seen founders go this route - they are very compelled by their vision, very compelled by the solution they think that the market needs or some innovation that needs to be in the market, where they max out credit cards, they put their house on the line.
This is very hard for many founders because not everybody is a Steve Jobs or an Elon Musk or somebody who can match a vision and create a market out of nothing. And for most cases, when you think about market creation, it's nearly impossible. And if you have enough funds, you can do it. But for startups that are strapped for resources and time, the market decides for you because you run out of time to iterate.

So we think about getting continuous market feedback by creating small feedback loops with customers and answering a series of questions. And in our mind, there's no such thing as validated, right? Because your customer changes, the market changes, the solutions that are in the market change over time. And so, when we think about validation for us, it's getting to the root of the word. And that's understanding that validation means strengthening. So we're trying to strengthen evidence to support the hypothesis that we have and the ideas that we have, and understanding that building a venture is a journey.


It can take 18 + months to reach product-market fit. And that's why taking small bets and understanding your risks and plotting them - "Hey, what are the riskiest things? Is it something to do with legal? Is it something in how we're going to deliver what we're doing?" And being able to take those losses and stride because, in your startup, you're going to hit failures, so you want to hit them quickly. And I'm sure you've heard that before, but taking really small bets, addressing risk head-on, and having a plan for how you're going to test and iterate.

One example of this, and I always like this example, is a story of this pottery class that was told that they would be graded upon two different ways.
So the teachers split the class into two different groups. One group they said would be graded solely on the quality of their best pot, and the other group would be graded solely on the weight of the pots that they created over time. And so, the first group that wanted to create the perfect pot did a lot of research. They spent a lot of time in art galleries. They analyzed work. They analyzed the science of shapes. And the next group that was graded solely on the weight of the pots created the best pots. And that was because they focused on the process. They focused on failing. They focused on, you know, learning why the pots they created weren't beautiful or didn't hold their shape, or you know, all these myriad of factors that they had to solve to create the perfect pot.


So as you think about risk, it's important to take those small steps in those small experiments that challenge your assumptions and help you learn more and build upon those learnings.

Other Lessons

01

Promoter vs Realist

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01

Promoter vs Realist

For startup founders, both the promoter and realist are critical roles when it comes to launching and growing a successful startup.

Learn how you can create a balance between them.

Welcome to The Founder's Mindset series. One of the things we feel is important for founders and entrepreneurs is to realize that you have multiple roles to fulfill. One is a promoter, and the other is a realist. Being a promoter is an important, critical role. And it's natural - human nature is let's talk about my ideas. Let's tell people about what I'm thinking - and that is so critical. Fully encourage that. That includes talking to potential customers, potential partners, potential investors, potential co-founders. And it's a sales role. The promoter role is you're always selling, right? You should be doing this. And it's great because, without that, you'll never land a deal. You'll never raise money. You'll never do all the things you need to do. So you need to fulfill that sales role.

At the same time, we see founders getting trapped in that role alone, where they will become professional pitch competition winners. And they will think that raising money in itself is validation or that pitching is validation. It's all about the show and just getting on TV shows and PR and news articles, and it becomes this obsession to promote. And so, while that's valuable, it's important to be able to sell and to do that in the right way. Don't get tempted to do that and make that your only role.

So the promoter role is really important because you need that vision. You need to lead with that passion for what you're doing, and you need to sell, right? The other important role is the realist. The realist role is the ability to question yourself.

You can't believe your own bull, right? You have to be able to question yourself and say, is what I'm saying really true? And there are all sorts of assumptions baked into your business model, baked into what you think you're trying to do. There are lots of assumptions you're making that you might not be aware of yet. Is that true?

Stepping back and being able to reflect - [being a] realist is being able to... There's often a gap between your theory  right, and what you think to be true, and what your vision is - and the reality. And there's always a gap there. So it's being conscious of how big is that gap and being able to check yourself and slow yourself down.

So the realist is also a really important role - an equally important role to the promoter. But we see people also get stuck there, where they'll go into execution mode, and they'll go heads down, and they won't talk about what they're doing. And then later, they don't have customers lined up. They don't have partnerships lined up. They're not able to raise money. And so you need both, you need both the promoter to lead with vision, to be able to sell, and you need the realist, the humility to check yourself and to see where you might be wrong.

And that leads with humility. So there's promoter and realist, and you need both.

02

Product or Business?

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02

Product or Business?

Founders are passionate about their ideas. They should be. But passion doesn't always create revenue.

Learn the difference between building a product vs building a business.

One of the things we see entrepreneurs - and especially first-time founders - get hung up on is their product idea. You have an idea, you're super passionate about it. We want you to be - that's awesome. And it's only human nature for us to want to bring our idea to life and make it real and breathe into it, right?


But on the other hand, there's this temptation to build it first. This build first mindset is a really hard thing to shake because you're so excited about your product idea, and what features it's going to have. I just want to make this real. At the same time, you have to think about, "There are tons of other people that have created products before me, and most of them fail."
So there's the artist who is focused

on the the concept of bringing it to life and making it real and making it visible and showing people. And that's great, but that doesn't mean that you have a company. And when I mean company, I mean making money. You can think of this almost explicitly as spending money to build it versus a business that makes money, but we want you to be in this camp.
And there's a whole lot of activities here. If you just take the product and drop it in over here, it doesn't magically make money. There's a whole bunch of other things that need to be solved for over here. And we call it strategy. There's so much stuff to do. You're going to be thinking about different things over here than if you were just building it and it's just bringing this product, this art-clay thing to life.


We want you to be thinking about the business, how it makes money, the business model, the financial pieces, the pricing, the customer acquisition strategy, the target customer, the value proposition to offer them. There's so much over here that we encourage you to work on. And in doing that, it will inform and shape the product.
As the business model changes, as you get feedback from the market, this will change what the product is.

So we want you to kind of pull back and say, yes, you have an awesome opportunity you're willing to chase. We're so excited for that, but don't come at it with a build first mindset. Because you're going to need to choose.

Do I want to be an artist?
Or do I want to be an entrepreneur, who's building a company that makes money?

03

Decision Making

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03

Decision Making

As a startup founder, you'll need to make thousands of decisions for your product.

Learn to have strong beliefs, loosely held, and use customer feedback to make better decisions.

As you're chasing this opportunity now, there's going to be 10,000 decisions you're going to have to make. It's a lot to take on. So let's talk about decision-making. As you're chasing and going after this vision, we want you to constantly be getting feedback from the market, adapting to the market, and building a business that fits their needs.


The question is going to be, are you willing to follow the evidence? Because the feedback that you're going to get from the market will not be what you expected. And when we talk about decisions and 10,000 decisions - yeah, you're going to make some. But a lot of times, the market is the ultimate decider on what works and what doesn't work.


And when the market tells you one thing, and you believe another, are you willing to let go? Are you willing to adapt? We want you to be so excited about what you're doing and have these strong beliefs but loosely held. So are you okay following the evidence, letting go of what you thought it would be? Following towards what it actually is in order to get to that vision. Are you willing to flex? And those decisions have to come quickly, and with incomplete information. You're never going to have all the answers. You're never going to have perfect information. You're never going to have all the data, but you have to move - even if it's uncomfortable to move forward.


And it's okay to make reversible decisions. To try this, and it doesn't work - back up and go another way. But you're going to have to make decisions quickly, and it's sometimes uncomfortable. The question is, when that market feedback comes back, are you willing to adapt?
And are you willing to follow the evidence?

05

Founder-Market Fit

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05

Founder-Market Fit

What is founder-market fit? Why does it matter?

When you know your market and you're passionate about it you can make a lot of traction quickly by leveraging your network.

The final thing we want to talk about is this concept of founder market fit. You've probably heard of "problem market fit." But founder-market-fit is essential because when you know your market, and you're passionate about it, you learn how you can make a lot of traction quickly.


And a good test, if you have founder-market-fit or not, is understanding and taking a look at your network and evaluating, do I have access to early customers? Do I have people I can learn from and have conversations with? And can I source those interviews quickly? So when you're in discovery mode early on in your journey, does your network have the people you need to talk to? Can you see some of your network being early customers? And in some cases, that's enough for you to start getting that first customer. Maybe even get to 10 customers using your network alone. And beyond that is where you stand on the shoulders of your network to build case studies, build business cases and ramp up your sales efforts from there.


It's also important to note that when you know your market well, and you've lived in it, you're likely very passionate about it - you've spent a good chunk of your life experiencing the pains that are there. So you can have excellent conversations with people outside of your network - understanding that the knowledge that you have, what we might call an SME or a "subject matter expert," will help you and your company create more content. That's going to help your company connect with more people and ultimately help you build a more valuable business in the long run.


So we're asking you to check yourself on the founder market fit part and use that test by looking at your network and asking, do I have people that I can talk to about this, and gather some information and potentially, pitch to become early customers?

As we wrap up here, you know, it's important to note that startups are a long road. There are always going to be problems to overcome, there's always going to be friction. Having a passion for it is going to keep you going - understanding the "why" and having a vision for the impact you want to make in the market you're serving or the people you're serving. That is going to keep you going when the market tells you no or when you hear no from customers, or you hear no from investors.
Being passionate about what you're doing is going to help pull you through that.

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