Article Review - Beating the Odds When You Launch a New Venture

The article "Beating the Odds When You Launch a New Venture" originally published in the Harvard Business Review and written by Clark G. Gilbert and Matthew J. Eyring talks about a systematic approach for entrepreneurs to discover and mitigate business risks. Contrary to popular belief, the most successful entrepreneurs are actually very risk adverse but instead of not taking risks at all, they find ways to expose them and creative ways to mitigate them.

According to the article, there different types of risks.

1) Deal Killer Risks - Are uncertainties which if left unresolved can completely bring down a whole business operation. Often, these are based on assumptions within the business plan that simply go unchecked for too long as the whole business venture keeps advancing (and more money invested) only to backlash when the business plan is actually implemented and the consequences of the error felt iun full force. For example, assuming an attribute about your demand, more importantly your target market that is erroneous will develop the wrong business plan around your business. A cautionary example of a satellite radio company aiming to appeal to a lower end target market is given and their error of failing to make the actual radio playback device cheap enough to be affordable for the target market trumped the business into bankruptcy.

2) Path dependent Risks are those risks that may arise from choosing to take a business venture down the wrong path, ultimately wasting large sums of money and or time. The example given is that of E ink technology, a supplier of paper display technologies with multiple applications and thus markets but not all of which would be profitable. The risk thus came in spending too many resources in an emerging market that might later prove unprofitable or obsolete. E ink reduced the cost of pursuing all three of its options by outsourcing its marketing and production capabilities and instead focused on further developing the core technology that powered all three applications. When one market proved to be developing faster than the rest and was more profitable, E ink was able to deploy its resources into that field, carrying with it the technology developments it had learned by pursuing the others. Ultimately this led to a very profitable business venture and the technology was adopted by the wildly popular Amazon Kindle.

3) Risks that can be resolved without spending a lot of time and money. These types of risk are perhaps the most foolish risks overlooked as they could have been solved with minimum resources using models. The example given on the paper is of a laundry service company who wanted to expand into India (in lower income cities) and test their price to see how the target market who was not wealthy enough to own their own laundry machine would react. Using a simple kiosk with one laundry machine and dryer, the company effectively tested