Your Risk Profile
Based on the answers you provided in the diagnostic, we provide a risk profile, consisting of a score and the top three risks for you to mitigate. You can see where each of internal and external risk categories fall in the chart below.
Your Risk Score
The risk score reflects the average of your responses from the diagnostic. A lower score reflects lower risk profile (with respect to the level, likelihood and impact of your risks) and a higher score reflects a higher risk profile.
How to read this chart
- Q1 (Quadrant 1) represents the risks that should be actively monitored and mitigated.
- Q2 (Quadrant 2) represents the risks that can be mitigated through insurance.
- Q3 (Quadrant 3) represents risks that can be mitigated through changes in behavior.
- Q4 (Quadrant 4) represents risks that can probably just be monitored
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1. Product/Market Fit Risk
What this meansThe customers and their problems are not properly understood, or the startup solution has not yet been appropriately validated with any customer segment.
Reasons why this happens
- User needs are poorly understood.
- Team is trying to add too many features at once, not focusing on getting the key function right.
- Team doesn’t follow an effective product management process.
- Spend more time with your customers, and refrain from building until you’re sure of what their true pain points are using a research methodology.
- Hire an accomplished product manager or train yourself into one.
- Prioritize getting to a robust prototype to go to market quickly.
- Run frequent usability tests with users and iterate quickly to test features.
2. Execution Risk
What this meansThe team does not show the ability to coordinate and pivot as appropriate or the ability to make quick and tough decisions. In the worst case, the team takes forever to make decisions, can’t focus on the key issues, can’t say no to insiders and/or outsiders or can’t sequence or prioritize tasks in the right order.
Why this happens
- Running a startup means being a strong manager of a highly capable team at each phase. The CEO needs to know what kind of essential people he/she needs on the team and how to recruit them.
- Startup founders need to be watchful for and think in both short and long-term directions. A strong product or tech founder doesn't always make for the right kind of CEO to manage, focus and delegate.
- Assess what is needed in the organization and create clear job descriptions for each C-suite employee. The CEO's core job is to focus the team on traction.
- Improve your execution by using best practices like objectives and key results (OKRs) to help you prioritize and ship.
- Use your board as a focusing device, and meet with them frequently.
- The broader you go as an organization, the less you achieve, so keep a limited number of open projects and priorities.
3. Tech and Data Risk
What this meansThe product may require a major technological breakthrough, or it may be based on a risky tech platform that could lose its competitive advantage quickly or swallow the startup’s space. Alternatively, the startup may require access to data sources that are difficult to access, expensive or non-dependable.
Why this happensThe startup has invested too early in the technology platform or data sources, without considering future implications and switching costs.
- Design your tech vision to elegantly underpin your product vision, understanding where the true value of your product lies with respect to technology. Technology can be replicated; value proposition is much harder.
- Don't commit too early to a given platform, and avoid lock-ins where possible.
- Assess what needs to be built in-house (proprietary vs. outsourced) by leveraging myriad SaaS tools to build your startup stack.
4. Team Risk
What this meansAt the end of the day, venture funders invest in entrepreneurs and managers and need to believe that these are the individuals who will deliver on the vision and goals. If the investors do not feel the right team or the right incentives are in place, then the team becomes a risk for the success of the startup.
Why this happens
- The team does not have the right skills, networks and expertise to succeed in this venture and execute the proposed business plan.
- The team constantly has founder disputes and friction that detract from execution and hurt morale. There may be toxic elements or, more commonly, a need to replace founders and executives with more skilled individuals.
- Assess and identify the required skills and gaps in the existing team.
- Assign clear team roles, "owners" responsible for different tasks or areas of work and individual targets.
- Lean on your board for advice, and help with identifying and recruiting experienced candidates to build up your executive team.
- Have all founders follow vesting schedules with cliffs.
5. Fundraising Risk
What this meansThe CEO and wider team are not good at fundraising and don’t understand venture investors well enough. Fundraisers may also lack the necessary networks to connect to the right investors. The team may not clearly lay out unit economics. Understanding customer lifetime value (CLV) and customer acquisition cost (CAC) is essential even if it is theoretical at the beginning as it shows good understanding of the business and model and funding needed. Alternatively, the country, sector or idea might be unattractive to investors.
- Identify the best fundraiser on the team (hopefully the CEO) and train him/her properly on sales and venture deals.
- Leverage your board to get help refining the sales pitch and connecting to investors.
- Build a list of investors and prioritize by segment, and start connecting through your network and setting up meetings to pitch. Use each meeting as an opportunity to refine your message and understand the questions, doubts and risks they experience.
- Consider moving to another market or diversifying the investor pool (local vs. international, impact vs. commercial, sector expert vs. more sector agnostic, etc.).
6. Impact Risk
What this meansFor social ventures, the temptation to move upmarket and serve wealthier customers can be unrelenting. While that move may not threaten the chances of the business' survival (and might actually enhance them!), impact investors and social founders or cultures may feel betrayed.
- Bake impact deeply into the product by using a hybrid structure with a non-profit holding key IP or golden shares.
- Insert clawback clauses in term sheets.
- Constantly remind the team of the mission and vision, and integrate it deeply into the DNA of the company.
1. Macroeconomic Dynamics Risk
What this meansEven if there’s a great fit, the product may appeal to a market that is not big enough to sustain growth or deliver venture returns due to external forces (e.g., foreign exchange rates, political factors).
- Ensure your value proposition resonates with a large enough segment by estimating your total addressable market (TAM) and your serviceable available market (SAM) properly.
- Follow bottom-up and beachhead approaches to enable easy jumps to adjacent segments.
- Be prepared to adjust as political or economic factors affect your market.
2. Timing Risk
What this meansThe company might be entering the market at the wrong time. If it’s too late, its lunch will be eaten by more advanced competitors. Too early, and there will be no lunch for a while, so the startup will face an uphill struggle and possibly run out of runway.
- If the field already has many competitors, consider pivoting to differentiate.
- If you’re the pioneer, consider when the required elements for your growth (tech, user devices, user demand, regulations, ecosystem, etc.) will be available and whether you can be ready and still alive by then.
3. Ecosystem Risk
What this meansThe company may need market infrastructure that is unavailable, such as mobile connectivity, local hosting for servers, local financing for working capital, and efficient shipping services.
- Ensure that all aspects of the market support the product you are trying to launch.
- Have a backup plan in the event that infrastructure changes (e.g., access to internet in areas where it may not be reliable).
4. Regulatory Risk
What this meansThe startup may face difficulties from upcoming regulatory or legal risk as they relate to the product, operations, recruiting or its legal presence in a country.
- Thoroughly vet the regulatory environment before going too far with a specific business model.
- Understand the legal implications of each business model as legal battles can be costly and time-intensive.