Spreading Risk

This week’s topic is about opportunities and risk, where the article “Discipline Entrepreneurship” discusses ways to mitigate risk by formulating a working hypothesis and experiment. Additional supplemental reading that I have had the opportunity to read is the book Term Sheets & Valuations: A Line by Line Look at the Intricacies of Term Sheets and Valuations by Alex Wilmerding. This book tells you everything you need to know about what a term sheet is and how to use it. In a nutshell, a term sheet outlines the terms for a deal and is generally used by investors in order to discuss and negotiate with prospective investees.

Being able to capitalize on the tools suggested in both readings will be helpful during the initial phases of my team’s social venture, Care Van. In the MIT article, the author stated that experimenting during milestones allows the entrepreneur to solidify his/her business plan. A safe way to experiment and reduce risk is by outsourcing operations that are not essential to your brand. With that being said, Care Van plans to hold off on buying billing software. We would like to outsource that part of the operations until we know our venture is successful. Another key idea brought up by the MIT article was about having just the right amount of money during each milestone. All you need is enough funding to get you to the next phase. In the term sheet book, this is known as tiered payment. The idea is to spread risk so that an individual is not the only one held accountable for the success of the social venture. What are other ways a entrepreneur can mitigate risk either financially or within the structure of the organization?

Source: Term Sheets and Valuations: An Inside Look at the Intricacies of Term Sheets and Valuations by Alex Wilmerding