How to De-Risk a Startup
I completely nodded along with this — as advice for a normal, sustainable business. But this is not what startups do.<p>The whole point of a &quot;startup&quot; as conceived in Silicon Valley and as desired by VCs is that risk is HIGH. Let&#x27;s set aside whether this is good or bad (I would argue the drive for &quot;100x or bust&quot; returns is corrosive, but the word &quot;startup&quot; is tied to that kind of risk&#x2F;return model right now in the commonly accepted definition).<p>So let&#x27;s go through his principles and show what low risk means for hypothetical business idea &quot;XYZ&quot;:<p>-Founder has proven track record doing XYZ<p>-Lots of potential customers WANT to do XYZ<p>-Startup is making many hard (cash, full price) sales of XYZ<p>-XYZ is fully functioning and &quot;amazing&quot; and customers are loyal<p>-Prices are high<p>-Incumbents are successful<p>etc etc<p>When you have these kinds of attributes you have a nice business in an established sector. By definition. Lots of customers, incumbents, and sales means the XYZ idea has been well exploited. Great.<p>The whole point of a startup is to make a bold bet on something not entirely proven and safe. That doesn&#x27;t mean take DUMB risks, but this piece actually says you should try to get your business to the sort of low risk situations I list above.<p>But if you have an actually good idea you WANT to go into an area with few incumbents and where potential customers are skeptical and where you have no proven track record — because if something is genuinely NEW then guess what - there are no incumbents because no one is doing it yet - many of the customers don&#x27;t know they need it because it doesn&#x27;t exist yet - and you have no experience in it because no one on the planet has done it.<p>I mean you can definitely argue that many startups today take excessive risks and don&#x27;t take basic steps to minimize risks. Absolutely. And you can also argue that the world needs more sustainable practical businesses and fewer 100x startup attempts. I personally agree with that. But a substantial degree of risk and of lack of &quot;proof&quot; for a business idea is what makes a startup a startup. So if you want to de-risk a startup, find the sort of business that will qualify you for a bank loan. Maybe a nice plumbing enterprise :-)