Diminish Risk Through Serial Entrepreneurship
Actualizado: 12 feb 2020
After several years researching the key indicators of successful startups, one of the biggest AHA moments came in recently, to increase success rates, serial entrepreneurship is the answer.
The astounding rates of failure Entrepreneurs must deal with should be diminished.
· 75% of all venture backed startups fail
· 9 out of 10 startups will fail in the early stages
But how can this problem be adressed with greater success? After years of research here is a hypothesis you should strongly consider before starting a new business: start as a serial entrepreneur.
Success is a probability
When you flip a coin there are only two options for its outcome, 50% heads and 50% tails. If you go to a horse race with only 3 horses, each would have a 33,3% chance of winning (if they are all the same type of horse). But probabilities in variable context move up and down given the conditions.
Entrepreneurs like to bet on high risk unexplored space, where uncertainty is high, and probability of success is low. Inner desire for adventure almost always will lead to the Intuition Trap, a leap of faith that increases risk dramatically as entrepreneurs enter new markets almost blind, without knowing their chances. Several product creation methodologies like Lean Startup, Desigh Thinking, Stage Gate among others, recommend that first you should get smart about your new product, testing the market with prototypes, and then push for investing with people and money. This methods are just trying to show you a less risky path, where you know the answers beforehand, and Pivot to have better ods to succeed.
Examples of actions that will allow you to diminish risk
Rapid Prototyping: Lower risk of failure by testing who wants it before investing large amounts of money
Pivot your value proposition: Lower risk by testing if customers understand what you want to offer before investing.
Market Research: Get some data on your clients to understand your future risk.
Insight: Try to lower risk of failure through a combination of rapid prototyping, pivoting your value proposition and doing preliminary research, but if you do all this and also you Diversify Risk with several options, your risk dilutes.
How to design a Portafolio with high success rates
Predicting if a business is risky almost always depends on reliable information, if there is proof somebody did it before, you got it, it works. Historical data is the most reliable way of predicting risk.
If you want to start a business with an innovative idea that doesn’t exist yet the probability of finding out the willingness to pay from your client is uncertain. It is also uncertain then if you will have money to pay rent.
But, if you start 2 ventures one with very low risk (supposing low risk ideas are those proven that a client is willing to pay for, and high risk are those with no proof someone is willing to pay for) then the sum of both will make much more sense. Pairing your venture with another low risk business will make you have the greatly desired cash flow that the other project may not provide in the short term. You could use this cash to pay rent, eat out, and finance your other high-risk venture.
Synergy among projects
As you think of a second project to pair up with your core business, think of synergy between both, as you increase capabilities of execution there might be transversal knowledge relevant to both. The total portfolio value of your project paired with another that has synergy with the first, is much greater than two projects that dont have synergy.
Two projects with no synergy
Two projects with synergy
1+1= 2 + (cost saving premiums + economies of scale + multiple manifestations in assets) and more...
Can you think of low risk ideas to pair up with your startup? Let me know your thoughts.