The pursuit of a new business opportunity generally requires to do something “new” (not disruptive, but new) to solve customer needs. However, this newness creates uncertainty and is surrounded by scarcity.
How are we going to price our product? How much will it cost to produce? Will the technology work as we want? Will the market be sufficiently large? How can we answer to those questions when we have neither the time not the money to make this analysis?
Here is where entrepreneurial skills come to the stage, such as creativity, resilience, etc, etc. But on the top of that, an entrepreneur shall seek to minimize the negative consequences of this uncertainty by:
- Defining risk: examine and measure the factors that can create a bad outcome together with the probability to create value.
- Understanding the business model: understand the costs and revenue drivers, the market and the customer willingness to pay.
- Start lean: do not spend a lot of money building functionalities that nobody needs. Instead, build the minimum viable product and constantly measure results to determine where is the value and define the next steps.
- Make fix costs variable costs: Variable costs will increase the efficiency and profitability. On the top of that, they will increase flexibility, allowing your company to adapt to the new trends.
- Seek alignment: Transfer the risks to third parties by not committing to do something until a third party performs its duty. This interrelation of commitments will not only minimize the risk of failure (ie: run out of resources) but also will align the interests of all the stakeholders.
- Growth strategy: accurately define the resources your company need to grow and complete each step. Running out of cash is the worst reason for a startup to fail.
Finally, entrepreneurs should be critical with their ideas and celebrate for “successfully failing”. At the end of the day, the objective of an startup is to create value and the entrepreneur should seek to increase the ratio of reward to risk in favor of its owners. A good balance of risks will save a lot of money, time and resources. and therefore should be celebrating.