Risks and the Entrepreneur

Photo by @narrowedge

Photo by @narrowedge

Is it possible to be risk-averse and entrepreneurial at the same time?

Risk aversion is often misclassified as an aversion to all risks when it’s actually an aversion to unmitigated risks. To understand the difference, start with these questions:

  1. What variables do you need to control?
  2. How much time is enough?1

People overestimate variables under their control. It happens so often we don’t even see it. Investors assume risk when they presume a self-evident market opportunity (thus, why product-market fit is so important). Founders assume risk when they expect their health to remain constant (hence why many discuss the importance of exercise and sleep).

But there are other less-evident examples, such as technology choice.

Technology choice is a risk and opportunity

People ask what tech stack is best for a startup. I’ve seen suggestions like these, which all miss the later point.

  • You should use ‘X’ because the talent pool for ‘X’ is easier to hire.
  • You should not use ‘Y’ because it’s dead / dying.
  • It doesn’t matter.

The larger point is that tech stack is a variable, and it carries both risk and opportunity. How much does it matter for the tech stack to be outside your control? What are the capabilities within your power to mitigate that risk?

The number of variables outside your control correlates to how aversive you should be to overall risk. As you reduce your exposure to these variables, you can reduce that aversion. And if you’re leading others, reducing your exposure will benefit your team’s decision-making capabilities.

Being risk-averse is not antithetical to entrepreneurship. It can be highly complementary.

How do you know it’s (not) working?

Not having a handle on your variables nor time can result in analysis paralysis. Meetings get longer or more pointless. Email chains dissect bottlenecks to death. These are the symptoms of unaccounted variables or unclear time constraints.

A meeting-heavy culture is a sign that things are unclear for others, and somebody (i.e., “you”) need to do more to account for variables under their control, or clarify any time constraints.

Risks don’t just disappear

The problem with only paying attention to successful outcomes is that every success can look like an inevitability, every failure an anomaly. But peeling things back there is a structure to every success and failure in how risks were handled or ignored.

The goal here is not to eliminate variables or rid yourself of risks. It’s to understand that every risk is an opportunity, and every opportunity carries some risks.

A zero-risk opportunity does not exist.2 Risks are inherent in any opportunity – you can lessen them, but will never disappear entirely.

  1. I don’t say much about time here. You could say it’s just another variable, but given a choice between accounting for time versus other variables, time constraints are far less critical than most people realize. ↩︎

  2. I consider these “gifts,” and you don’t hear about successful companies built on gifts. For those startups that came out of nowhere, not accounting for the risks doesn’t mean there weren’t risks– it means they were fortunate. Don’t assume this is you. ↩︎