Bonnie Gloris: Mitigating Risk

The topic Getting Ready For Almost Anything: Opportunities and Risks, is yet another reminder of the importance of managing uncertainty as we launch our new business ventures. Starting a business is inherently risky, but risk can be minimized by following the advice that Donald Sull provides in “Disciplined Entrepreneurship.” Sull is an associate professor of management practice at the London Business School. He outlines a disciplined approach, with major steps being:

1) Formulate a Working Hypothesis.

2) Assemble Resources.

3) Design and Run Experiments.

The article reaffirmed the conclusion I came to last week about my team’s strategy for iCraft Path – to launch the venture as an online resource community, utilizing strategic partnerships with existing organizations.  iCraft Path can then be scaled up to offering personalized services, for needs not being met by existing organizations. 

This is a safe approach, as when it comes to assembling resources, the venture will only need to raise enough money to fund the next round of experiments. If interest level and traffic to the website is low, the project can be discontinued after only a minimal investment. If demand proves to be high, more funds can be raised, and the venture can consider making key hires. The approach allows ventures to test and refine business models before scaling operations. As described by Sull, “the iterative experimentation model is designed to add discipline without killing the entrepreneurial spirit.”

The article was especially interesting, as I read it in conjunction with a paper on disruptive technology (a term concisely described here), for the Marketing and Digital Strategy class I’m currently taking. According to WhatIs.com, “A disruptive technology is one that displaces an established technology and shakes up the industry or a ground-breaking product that creates a completely new industry.” The term was coined by Harvard Business School professor Clayton M. Christensen, who observes that: “it is not unusual for a big corporation to dismiss the value of a disruptive technology because it does not reinforce current company goals, only to be blindsided as the technology matures, gains a larger audience and market share and threatens the status quo.”

In Christensen’s HBR paper, big companies are portrayed as fairly hopeless in the area of identifying and developing disruptive technologies, and start-ups are charged with this task. Even so, the author states that “the key is to manage strategically important disruptive technologies in an organizational context where small orders create energy, where fast low-cost forays into ill-defined markets are possible, and where overhead is low enough to permit profit even in emerging markets.

The lesson? Even in our inherently risky start-ups, being smart and strategic is essential. What other ideas do people have for mitigating risk for their ventures?