2 Types of Startup Risk

Source: The Startup Owner’s Manual – Steve blank and Bob Dorf

Steve blank mentions two types of risk that every startup has in his book, The Startup Owners Manual.

One of these risks has to do with WHAT you building, while the other has to do with WHO you’re building it for.

1. Invention Risk

When building a startup naturally you’ve come up with something to sell to someone. This might be a new take on an existing product or something entirely new to an industry.

The first type of risk is relevant if your startup falls into the second category. There are endless amounts of possible new things you can build, but unfortunately not all of them are possible (yet).

Some maybe aren’t possible because the technology just isn’t there yet, while others might just take a lot of time to build – maybe decades.

Thankfully in the internet space most things don’t have this risk. But if you’re in the robotics or artificial intelligence industry then you might be closer to having invention risk than you think.

It’s helpful just to have this in the back of your mind when starting a new company. Don’t just assume everything is possible, but take into account the difficulty it might take and if there have been any others in the past who have already tried and failed or even worse currently trying and failing.

This isn’t necessarily a no-go, but you can learn from their mistakes and not follow them off the side of a cliff.

One example I found was hydrogen blimps. Apparently the invention was popular enough for its lower cost than traditional blimps but since hydrogen is significantly more flammable than other natural gases, this caused them too easily combust (in just 36 seconds). Not something you’re going to want to be miles high in.

2. Customer / Market risk

This is risk that has do with the customer and/or market you want to serve. 

This type of risk comes from asking these two questions, does my target customer actually want what I’m selling? I know this is a pretty basic question but remember the question isn’t – do I want it? While this second question might actually be helpful to the small amount of people who have vast amounts of industry experience – for most it’s not.

Another question is, does the market I’m serving actually have a need for my product and is it big enough? These are very related questions, in my opinion this one has more to do with the market as a whole, such as whether the market is even big enough to make it worth your investor’s and your time and money.

The good news is you can find out where your idea stands with both of these risk using the customer research and development methodology taught by Steve Blank. In it’s simplest form, go out and ask some questions.

If you want to find out if you have invention risk, get in touch with some industry experts and ask them

If you want see if you have customer or market risk, start talking to people that you think would want your product. If they seem suspiciously uninterested then your probably going want to tread carefully.

I went through this same exact thing when trying to build my first startup that had to do with roadside assistance. 

When my team started talking to potential customers about it, we noticed that they just didn’t worry about getting a flat tire or getting stuck on the side of the road. Trying to sell these people an app would have been a mistake.

Let me know in the comments below if your startup has either of these 2 risks and how you’re overcoming them.

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1 Comment

  • turkce
    Posted February 16, 2021 at 4:07 pm 0Likes

    The the very next time I read a blog, I hope so it doesnt disappoint me as much as this. Come on, man, It was my solution to read, but I personally thought youd have something interesting to convey. All I hear can be a lot of whining about something that you could fix in case you werent too busy interested in attention. Britni Sawyere Cupo

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