Are you taking market risk or technology risk?

Brokencasio
Photo by MHuang

If you're working in the pharmaceutical industry, your main risk is your new treatment won't work. There's a massive number of medical problems people are certain to pay money to solve, if you can create a drug that works.

In the toy business, it's completely different. Building that new Pet Rock or Cabbage Patch Doll is easy, but for very hard-to-predict reasons people may not like it. You may not be able to distribute or market it even if there are some who do.

Most startups lie on a spectrum between these two extremes of technology and market risk, but I've learnt it's crucial to understand what your mix is. People from a business background prefer market risk, because that's something they know how to measure and mitigate. Techies like me have a bias towards hard engineering problems that they know how to solve.

I started off thinking that Mailana's main risk was technology – it's really hard to integrate with Exchange, build Outlook plugins and analyze millions of emails in real time. There were all sorts of end-user problems that can be solved with the information derived from that, so once the system was built, customers would come. You can chuckle at my naivity, but I never understood that there were two separate risks. I put a lot more effort into coding than understanding the market, and then discovered there were all sorts of unexpected cultural issues around privacy that scuppered my first attempt when it was in front of customers

The beautiful thing about market risk is that you can take very simple steps to reduce it before you spend months coding. Build slideware and ask your potential customers if they'd buy a working version. Buy some relevant AdWords and point them at a dummy product page to see if anyone signs up for more information.

If you're reading this, you're not Pfizer and you do have a market risk. Take a long hard look at your business and see what you can do to reduce it.

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