There’s a common trope that entrepreneurs take huge risks, which is sometimes true, but it’s often quite the opposite. The best entrepreneurs clearly define threats, and systematically test hypotheses on their way to viability.
For every person who drops everything and takes on credit card debt hoping to make a concept work, I would guess there are more people that take a very intentional approach to starting their ventures.
One common path to de-risk a venture is to start your business knowing you will have revenue right away. For example, if you’re a grant writer at a large non-profit, maybe you were approached by a connection to write a series of grants on behalf of their organization for $10,000.
If you quit your job, you know at least you have $10,000 of revenue coming into your new grant-writing business. You can imagine similar ideas for consultants, marketers, developers, engineers and more.
This model works well for service businesses, but what about product based businesses?
The biggest risk is that your product doesn’t solve a real problem for people. Related, there is a risk that you can’t build a quality product, and sustainably solve this problem.
Now, if you’re an investor who is allocating capital into product businesses, you are aware of these two risks. So if a team can come to you and show that they have validated the problem, and built a solution that solves the problem, that is hugely beneficial.
While investors often bet on teams and founders they believe in, in general, pre-product company with no traction will not command as high of a valuation as a company with a product that solves a real problem.
In the world of hiring, many entrepreneurs are very particular with who they hire, and will “test” people by hiring them as contractors. That way they get to work with someone without having the full commitment of hiring them full time. If you’re in this position, carving out small projects and outsourcing them to talent you are vetting can be a great way to de-risk assumptions in hiring.
Lastly, if you’re seeking a job in a company, you want to de-risk the company’s investment in you as an employee. Can you demonstrate you’re capable of doing the tasks you’ll need to do in your job? Do you have a proven track record and portfolio that demonstrates your competence?
Risk is everywhere. Entrepreneurs and investors are constantly thinking about how to manage risk. Understanding how these people think will give you a leg up as you try to create your place in the world.