Understanding your business risks

Great lesson from Steve Blank Customer Development Guru on understanding what kind of risk a start-up has

Steve: Big idea here. It’s a big idea, one that I’ve never heard articulated before at all with startups, yet world-class VCs know this on day one. There are some industries where the risk is purely customer in market.

And by purely I just mean, in Silicon Valley we take for granted digital media and web, with all due respect, for the hard work your software engineers are going to do getting it up, it’s not invention.

It’s, gee, did, they do it efficiently or did the Oracle salesman convince them to buy half a million bucks of software they didn’t need. But it’s not invention.

There’s a whole other set of industries where it truly is invention. Where it truly is, we should be so lucky to get this product working. Because if we get an asthma drug or an oncology for cancer curing drug, our only problem is how big is the licensing deal going to be? And not whether customers are going to want this.

Is this distinction clear? When you start a company, question one to self. Memo to self. Am I in a market risk company? Or am I in an invention risk company?

A corrolary of this idea is that if your primary risk is Customer Market risk you better have a very good plan to scale. One of the big reasons that Web 2.0/social networking is so hot is that it has concept of scale built into the application. Unline traditional apps, which have to be sold individually, Web 2.0 apps naturally generate scale.

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