Donald Sull states, "The critical task in entrepreneurship lies in effectively managing the uncertainty inherent in trying something new." Being able to successfully manage risk and provide returns to investors is critical in the success of any business, but how do certain entrepreneurs do it so much better than others? Time and time again we see startups with great ideas fail to innovate or execute and get pushed out of the market. The risk assessment of these startups may exist and be rather robust, but how is it that they just couldn't figure out to successfully test ongoing hypothesis?
By treating a startup like an experiment, as Sull suggests, will help to identify deal killers and potential bets to take. On the other hand, I came across an article identifying 5 key elements that can significantly help a startup to be successful. David Klein, CEO of CommonBond, identifies 5 steps that can help entrepreneurs be successful. I found that reading both Kelin's and Sull's takeaways on how to build a company incredibly helpful in understanding how to mitigate market risks.
1. Have a clear, simple view of the company's value proposition.
The reason for this simplicity is because customers want to know why they should purchase your product or service in 10 seconds or less. Starting a business with a convoluted business plan and mission statement can make the value proposition difficult to determine.
2. Enter a proven market.
Being a first-mover in a market may come with benefits, however the risk of entering a new market is incredibly high. If an opportunity exists within an established market because companies are not capturing this unmet need, then the risk is much lower.
3. Have a revenue and profit model that will create cash flow to fund growth and create returns for investors.
Cash is king, and without a sustained return plan for investors, it is difficult to get funding in the first place. Creating immediate cash will help a company to remain solvent, and an established return plan to investors will help with subsequent rounds of funding.
4. Have an idea of how to invest in and improve the business model over time.
Because markets are dynamic with a large amount of competition, it is critical for entrepreneurs to remain flexible and have an understanding of how to growth the company over time. Furthermore, it is essential to understand how to spend cash effectively when results are not as expected.
5. Ask for funding at the right time for the right reasons.
Many VCs want some sort of demo or proof of concept before providing the initial seed capital. However, if too much time is spent on developing a robust infrastructure, then it might be too late to get funding. It is critical for entrepreneurs seek funding at the right time in order to properly leverage this capital.
source: http://www.inc.com/karl-and-bill/5-steps-to-a-successful-start-up.html?nav=featured
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