Startups and Risk Assessment

by on December 5, 2007


Did you know that more people die every year from falling down the stairs than from snake bites? Crazy, huh?

Did you know that a child is 100 times as likely to drown in a swimming pool than be killed by a handgun?

It turns out that most of us do a poor job at evaluating risks. We’re terrified of snakes, but don’t think twice about walking down the stairs. Parents won’t let their children play with their friends whose families own guns, but they don’t have a problem with them going swimming every weekend.

I’ve noticed that many startups suffer from similarly poor discernment into risk assessment. Here are a few examples:

Maybe you have a startup but won’t tell anyone what you are doing because you are worried that someone will steal your idea. Instead, you run around with a stack of NDA’s and tell everyone you are in “stealth mode”. As a result, you miss out on valuable feedback that would undoubtedly improve the direction of your product. Sure, there is a chance that someone might steal your idea, but isn’t the greater risk that you will build something that no one wants?

Perhaps you are worried that your web application won’t scale to millions of users. As a result, you spend a large percentage of your time and resources making sure your application is fully scalable. While scalability is an important issue to consider, the majority of preparation for future growth should come after you’ve proved that people want what you have. Is there a risk that your product won’t scale? Sure — but that’s a good problem to have. As Dharmesh Shah recently said:

Don’t fall into the trap of spending your limited resources on planning and preparing for success. Instead, spend them on things that will actually increase your chances of success.

With any luck, your product will experience growing pains at some point down the road, but that shouldn’t be your first concern. Instead you should realize the greater risk is that your company will run out of money before you get a chance to show your amazing product to the world.

Don’t let the perceived risks make you take even greater risks. Instead, try to evaluate them as objectively as you can, and then act accordingly.