How to Manage Innovation and Risk in Startups

Here’s installment #4 of 10 from my Breakthrough Energy Fellows session: Stare Into The Abyss (aka Don’t Bury Your Head In The Sand!) Great entrepreneurs embrace the (often difficult) reality of their situation and prioritize actions that confront the most critical obstacles to their progress. Last week, I shared the following simple equation: Value = 1 / Risk The bigger risk you retire, the greater the value you create. While this concept is easy to understand, executing it is much harder. I often see less-experienced entrepreneurs ignoring their most serious risks in hopes that the challenge(s) might somehow dissipate on their own. Or hoping that by nibbling around the edges on lower risks, they can survive long enough to raise more money and continue pursuing their ambitions for a bit longer. The reality is that avoiding risks doesn’t make them go away. Confronting them head-on is almost always the key to making progress and unlocking value. One of my favorite frameworks that captures this type of thinking is the Heilmeier Catechism (https://lnkd.in/e2xsmAvt), named for the former DARPA Director, George Heilmeier. Heilmeier’s no BS check-list encourages innovators (and investors) to ask themselves the hard questions early, and often: Why do you think what you are doing is valuable? What’s the biggest risk preventing your progress? Are you willing to tackle it directly, or are you hoping it will resolve itself? It’s a simple yet powerful reminder that progress starts with clarity, conviction and action. Confronting reality for your company might mean: *Running that “killer” experiment now (not later) to prove (or disprove) what your technology can really do; *Engaging the market more intentionally and asking explicit questions of your potential customers on why they would buy your solution; *Internalizing that a (new, or old) competitor might actually have a better solution than you, and it’s time to pivot your product and/or reframe your value proposition; *Pushing an initial / early customer to actually pay for what you are providing them instead of doing it for free (and trying to delay finding out how much they value what you are providing them); *Acknowledging that you don’t have enough cash / runway to execute your primary plan and engaging with your investors and team to rethink the situation and strategy; The courage to confront reality isn’t just about mitigating risks; it’s about unlocking your venture’s full potential. And while confronting your biggest risks can be uncomfortable, it’s also the fastest way to make meaningful progress and achieve lasting success. So take a moment today to ask yourself: How are you doing on the questions in Heilmeier’s Catechism? What’s the hardest truth you all need to confront today? What can you do next to overcome this risk and move forward even more confidently? #LeadershipLessons #ClimateTech #Impact #Courage

🚀 𝗥𝗶𝘀𝗸 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗲𝘀 𝗳𝗼𝗿 𝗘𝗮𝗿𝗹𝘆-𝗦𝘁𝗮𝗴𝗲 𝗖𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀 🚀 As a fractional CIO, I've witnessed firsthand the ups and downs of launching and scaling new ventures. While early-stage companies prioritize innovation and growth goals, effective risk management is frequently overlooked despite the severe consequences of neglecting this crucial area. Startups face many obvious and hidden risks, including cybersecurity threats, operational issues, financial instability, and changing market conditions, which can disrupt even the most promising ventures. Understanding and preparing for these risks is not just about protection - it's a strategic advantage that can give your company a competitive edge. 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗲𝘀 𝗳𝗼𝗿 𝗥𝗶𝘀𝗸 𝗠𝗶𝘁𝗶𝗴𝗮𝘁𝗶𝗼𝗻: 1️⃣ 𝗖𝗼𝗺𝗽𝗿𝗲𝗵𝗲𝗻𝘀𝗶𝘃𝗲 𝗥𝗶𝘀𝗸 𝗔𝘀𝘀𝗲𝘀𝘀𝗺𝗲𝗻𝘁: Start by identifying potential risks across all facets of your business, including operational, financial, strategic, and compliance risks. Understanding the breadth of what might go wrong is the first step toward mitigation. 2️⃣ 𝗣𝗿𝗶𝗼𝗿𝗶𝘁𝗶𝘇𝗲 𝗕𝗮𝘀𝗲𝗱 𝗼𝗻 𝗜𝗺𝗽𝗮𝗰𝘁: Not all risks are created equal. Prioritize them based on their potential impact on your business and the likelihood of occurrence. This will help you allocate resources effectively, focusing on what matters most. 3️⃣ 𝗖𝘆𝗯𝗲𝗿𝘀𝗲𝗰𝘂𝗿𝗶𝘁𝘆 𝗙𝗿𝗮𝗺𝗲𝘄𝗼𝗿𝗸: In today's environment, cybersecurity is a cornerstone of risk management. Implement robust security measures, conduct regular audits, and ensure your team is educated on the importance of cybersecurity hygiene. 4️⃣ 𝗗𝗲𝘃𝗲𝗹𝗼𝗽 𝗮 𝗥𝗶𝘀𝗸 𝗠𝗶𝘁𝗶𝗴𝗮𝘁𝗶𝗼𝗻 𝗣𝗹𝗮𝗻: For each identified risk, develop a mitigation strategy. This could range from insurance to diversifying your supplier base, implementing strict financial controls, or having a crisis management plan. 5️⃣ 𝗙𝗼𝘀𝘁𝗲𝗿 𝗮 𝗖𝘂𝗹𝘁𝘂𝗿𝗲 𝗼𝗳 𝗥𝗶𝘀𝗸 𝗔𝘄𝗮𝗿𝗲𝗻𝗲𝘀𝘀: Risk management should be a part of your company's DNA. Encourage open discussions about risks and ensure your team can proactively identify and respond to them. 6️⃣ 𝗥𝗲𝗴𝘂𝗹𝗮𝗿 𝗥𝗲𝘃𝗶𝗲𝘄 𝗮𝗻𝗱 𝗔𝗱𝗮𝗽𝘁𝗮𝘁𝗶𝗼𝗻: The startup ecosystem and its risks are not static. Regularly review your risk management strategies and adapt them as your company grows and new risks emerge. As startups aim to innovate, incorporating risk management into your core strategy ensures preparedness for potential obstacles and a path toward sustainable growth. Being risk-aware doesn't mean being risk-averse. It's about making informed decisions and safeguarding your company's future without hindering innovation. Interested in fortifying your startup's future while fueling innovation? Reach out to me to learn how. 💡

Risk is not something to avoid. But too often, leaders fail to cultivate it. As a leader who's navigated complex challenges, I've learned true innovation begins where comfort ends. Here's how to encourage risk-taking in your team: 1️⃣ 𝗖𝗿𝗲𝗮𝘁𝗲 𝗮 𝘀𝗮𝗳𝗲 𝘀𝗽𝗮𝗰𝗲 ↳ Encourage transparency without fear of repercussions. ↳ Reward honest mistakes as learning opportunities. 2️⃣ 𝗟𝗲𝗮𝗱 𝗯𝘆 𝗲𝘅𝗮𝗺𝗽𝗹𝗲 ↳ Show vulnerability by sharing your own failures. ↳ Take calculated risks and share the process. 3️⃣ 𝗣𝗿𝗼𝗺𝗼𝘁𝗲 𝗲𝘅𝗽𝗲𝗿𝗶𝗺𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻 ↳ Allocate time and resources for new ideas. ↳ Celebrate innovative efforts, not just successful outcomes. 4️⃣ 𝗦𝘂𝗽𝗽𝗼𝗿𝘁 𝗰𝗮𝗹𝗰𝘂𝗹𝗮𝘁𝗲𝗱 𝗿𝗶𝘀𝗸 ↳ Provide clear guidelines for acceptable risks. ↳ Encourage data-backed decision-making. 5️⃣ 𝗙𝗼𝘀𝘁𝗲𝗿 𝗮𝘂𝘁𝗼𝗻𝗼𝗺𝘆 ↳ Trust your team to make decisions. ↳ Reduce micromanagement; empower independent action. 6️⃣ 𝗖𝗲𝗹𝗲𝗯𝗿𝗮𝘁𝗲 𝗹𝗲𝗮𝗿𝗻𝗶𝗻𝗴 ↳ Highlight lessons from failed attempts. ↳ Encourage continuous improvement over perfection. Innovation thrives in a culture that values calculated risks. Give your team the freedom to innovate. PS: How do you encourage risk-taking in your organization? __________ ♻️ Repost to benefit your network. ➕ Follow me for more content like this. 🎁 Grab your free infographics: https://lnkd.in/drW22SgX  

Being disrupted is avoidable. In fact, the biggest threat isn’t competition—it’s complacency. As I've launched and scaled businesses over the last 30+ years, I've lived by a mantra: "Someday, someone is going to come along and put us out of business. It might as well be us." What if you treated yourself like your own fiercest competitor? What if you out-innovated your own best ideas before someone else does it for you? Here’s the simple truth: Staying ahead means actively challenging your own success. Ask yourself: If someone started a competing business today, how would they take me down? What pain points in my current model would they exploit? What technologies, processes, or strategies could replace what I’m doing now? By proactively identifying these vulnerabilities, you can fix them before they become someone else’s opportunity. Take Bevi as an example. Bevi produces smart water dispensers that eliminate the need for single-use plastic bottles. They could have stuck to being a water company, but instead, they embraced IoT to create dispensers that personalize drink options while tracking usage data for sustainability reporting. They didn’t wait for competition—they reimagined what "water delivery" could mean. Or look at Too Good To Go, a company tackling food waste. Their app connects restaurants, bakeries, and stores with consumers willing to buy surplus food at discounted prices. Instead of focusing solely on traditional delivery or inventory management, they innovated by turning what was once seen as "waste" into a valuable new market. Another example is Rocket Lab, a company disrupting the aerospace industry. While SpaceX captures headlines, Peter Beck's Rocket Lab focused on a specific market: small satellite launches. They developed their lightweight Electron rocket to serve this niche and recently began reusing their rockets, ensuring they stay ahead of emerging players. Here’s how to apply this in your own world: Run a “disruption audit.” Once a quarter, sit down and analyze how someone could outperform you. Test new ideas. Try things that could make your current methods irrelevant. Experiment before the stakes are too high. Think long-term. Innovation isn’t about catching up; it’s about leaping ahead. Build the future before someone else beats you to it.  The real problem isn’t competition—it’s waiting too long to act. The real question is: Will you disrupt yourself... or wait for someone else to do it?

Had one of the most important conversations I’ve had in years, guiding a startup on understanding the critical difference between de-risking and diversification within their growth strategy. Internalizing the difference is one of the most powerful hallmarks of success vs. failure for young companies in the eyes of investors. The strategies of de-risking and diversification often get mentioned in the same breath, but it's crucial to grasp their distinctly different impacts on a startup's trajectory. De-Risking. This approach is about reducing the potential downside of a specific asset or project. For startups, de-risking could mean validating a product idea through customer feedback, improving technology to meet regulatory standards, or securing patents. It makes a particular asset less risky to invest in and can significantly boost investor confidence, as it focuses on enhancing the success probability of the startup's core offering. Diversification. On the other hand, diversification involves spreading resources across various products or markets. It's a strategy often employed by established companies to hedge against the failure of any single venture. However, for startups, diversification can be a double-edged sword. While it might seem like a safety net, it often leads to diluted focus and resources, potentially weakening the startup's position in its primary market. For early-stage startups, the key is not to stretch too thin too soon. Investors typically look for focused, potent efforts that de-risk the primary product or service, not a scattergun approach that might compromise the depth and quality of the innovation. Plus, for investors looking for outsized returns, diversification actually works against the goals of their investment. Remember, in the startup world, depth often trumps breadth. A well de-risked core offering has the potential to garner significant returns and attract keen investor interest, far outweighing the perceived safety of diversification. #StartupStrategy #RiskManagement #Entrepreneurship #Innovation #VentureCapital

Most companies claim they embrace failure. But walk into their Monday meetings, and watch people scramble to hide their missteps. I've seen it countless times. The same leaders who preach 'fail fast' are the first to demand explanations for every setback. Here's the uncomfortable truth:  Innovation dies in environments where people feel safer playing it safe. But there's a difference between reckless failure and strategic experimentation. Let me show you exactly how to build a culture that genuinely embraces productive failure: 𝐂𝐡𝐚𝐧𝐠𝐞 𝐲𝐨𝐮𝐫 𝐩𝐨𝐬𝐭-𝐦𝐨𝐫𝐭𝐞𝐦 𝐦𝐞𝐞𝐭𝐢𝐧𝐠𝐬 Stop asking "Who's fault was this?" and start asking: "𝘞𝘩𝘢𝘵 𝘩𝘺𝘱𝘰𝘵𝘩𝘦𝘴𝘪𝘴 𝘸𝘦𝘳𝘦 𝘸𝘦 𝘵𝘦𝘴𝘵𝘪𝘯𝘨?" "𝘞𝘩𝘢𝘵 𝘴𝘱𝘦𝘤𝘪𝘧𝘪𝘤 𝘥𝘢𝘵𝘢 𝘥𝘪𝘥 𝘵𝘩𝘪𝘴 𝘧𝘢𝘪𝘭𝘶𝘳𝘦 𝘨𝘪𝘷𝘦 𝘶𝘴?" "𝘏𝘰𝘸 𝘤𝘢𝘯 𝘸𝘦 𝘶𝘴𝘦 𝘵𝘩𝘪𝘴 𝘪𝘯𝘧𝘰𝘳𝘮𝘢𝘵𝘪𝘰𝘯 𝘧𝘰𝘳 𝘰𝘶𝘳 𝘯𝘦𝘹𝘵 𝘪𝘵𝘦𝘳𝘢𝘵𝘪𝘰𝘯?" 𝐂𝐫𝐞𝐚𝐭𝐞 '𝐞𝐱𝐩𝐞𝐫𝐢𝐦𝐞𝐧𝐭 𝐬𝐡𝐨𝐰𝐜𝐚𝐬𝐞𝐬' Monthly meetings where teams present their failed experiments and the insights gained. The key? Leaders must go first. Share your own failures openly, specifically, and without sugar-coating. 𝐈𝐦𝐩𝐥𝐞𝐦𝐞𝐧𝐭 𝐭𝐡𝐞 "24-𝐡𝐨𝐮𝐫 𝐫𝐮𝐥𝐞" After any setback, give teams 24 hours to vent/process. Then require them to present three specific learnings and two potential next steps. This transforms failure from a dead end into a data point. Most "innovative" teams are just risk-averse businesses in disguise. They've mastered innovation theater, not actual innovation. Don't let your people think they need permission to innovate. Instead, start building systems and a culture that make innovation inevitable.

𝗠𝗮𝗻𝗮𝗴𝗲 𝗿𝗶𝘀𝗸, 𝗱𝗼𝗻'𝘁 𝗲𝗹𝗶𝗺𝗶𝗻𝗮𝘁𝗲 𝗶𝘁. MBA programs teach us that you should minimize risk through detailed analysis and mitigation strategies. But risk is an inherent part of entrepreneurship. For most entrepreneurs, some of the biggest gains come from taking bold risks others are afraid to take. You learn to manage it on the fly because you have no way to eliminate it. What does that look like in practice? It’s an entrepreneur who spends six months building a business. They’ve got no traction. They’re going nowhere. They learn, through a conversation, that this business might work in an alternative industry, so they pivot. Market data supports the idea. 𝗧𝗵𝗮𝘁’𝘀 𝗮 𝗯𝗼𝗹𝗱 𝗿𝗶𝘀𝗸. I worked with a young company called Zeumo. Zeumo had built a beautiful app that allowed teachers to interact and communicate with students and families. The customer was the school system, but the people running the system didn’t want a solution that wasn’t free. 𝗜𝘁 𝗴𝗼𝘁 𝘇𝗲𝗿𝗼 𝘁𝗿𝗮𝗰𝘁𝗶𝗼𝗻. They pivoted to healthcare and shared the app with hospital CEOs so they could communicate with their doctors and nurses, particularly on anything emergent and urgent. They immediately started getting traction and were able to sign up several hospitals because CEOs had no way to communicate because their doctors and nurses were not on the same Microsoft Outlook as their employees. The founder grew Zeumo and then sold it to a much larger business in the healthcare space. That was incredibly courageous. Shifting from Edtech, which they knew, to Healthtech, which they did not. But, they saw the opportunity and started leveraging advisors (who knew the healthcare market) to execute the pivot. 𝗧𝗵𝗲𝘆 𝘀𝗮𝘄 𝘁𝗵𝗲 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆 𝗮𝗻𝗱 𝗺𝗮𝗻𝗮𝗴𝗲𝗱 𝘁𝗵𝗲 𝗿𝗶𝘀𝗸. If they were of the mindset to eliminate risk altogether, they’d have stuck with the Edtech market and gone bust. - - - P.S. If you liked this post, you'll love my 2-minute newsletter, link in my profile > @michaelburcham

Taking risks doesn’t make you brave—it just means you’re reckless if you’re not prepared. When you’re creating a project or a business, you’ve probably thought about the risks. And if you haven’t, you should. People love to say, “Take the leap! No risk, no reward!” And sure, that’s true. Without risks, there’s no progress, no learning, no growth. But taking risks without being prepared isn’t bravery—it’s stupidity. It’s like jumping into a pool without checking if there’s water. And if you’re not careful, you’re going to hit the ground hard. That’s where the pre-mortem analysis comes in. It’s not about avoiding risks—it’s about understanding them. It’s about imagining your project has failed and working backward to figure out why. Because if you can predict how you might fail, you can prevent it from happening. Here’s how it works: 1️⃣ Imagine the project has failed. Gather your team and ask: “What went wrong?” Map out every possible reason. 2️⃣ Identify the risks. Categorize them: internal (team, resources) vs. external (market, competition). 3️⃣ Create a prevention plan. For each risk, outline actionable steps to mitigate it. The benefits? Uncovers hidden risks before they become problems. Encourages open, honest communication within teams. Builds a culture of proactive problem-solving. I always take this step when building out long-term plans for our teams because I remember the feeling of being terrified of failure and not comprehending what that looks like. It was my first ever “startup” in high school and I couldn’t shake the feeling that we were gonna crash and burn, but I just didn’t know how to describe it. Then my mentor put me on to the pre-mortem analysis. When I started describing what failure looked like, it became a lot less frightening and I built out plans to steer clear from failure. Again, taking risks is necessary, just make sure you’re not going into them blindly. Plan for failure to ensure success. Because the best way to win is to know how you might lose. #entrepreneurship #leadership #founders #problemsolving #growthmindset #startups #strategy

How do you strike the perfect balance between pushing boundaries with innovation and ensuring steady growth for your startup? It’s a common dilemma for growing startups. While the initial instinct may be to prioritize rapid growth, it's imperative to recognize that sustainable success hinges on fostering a culture of innovation. So, finding the right equilibrium between the two can be a nuanced task. As a 2nd time founder, I've grappled with this dilemma firsthand while building TravelTriangle. And, from my experience, cultivating a company culture that values innovation and assembling a team that embraces experimentation are of utmost importance. Yes, growth is crucial for the survival and prosperity of any startup. Yet, it's essential to pursue growth strategies that ensure scalability without sacrificing product or service quality. A practical approach to managing innovation and growth involves —Allocating dedicated time for experimentation and exploration —Empowering team members to pursue passion projects that may not yield immediate returns In short, being flexible. Here are some key insights from implementing this approach across a team of 500+ in TravelTriangle: 1️⃣ Top-down enforcement of the innovation culture is essential, coupled with clear accountability at the middle management level. 2️⃣ Establish a clear vision with key milestones to maintain focus on the bigger picture while achieving short-term objectives. 3️⃣ Cultivate a culture that embraces innovation and views failure as a stepping stone to success. Encourage experimentation and learning from both successes and failures. 4️⃣ Beware of the risk of focusing solely on incremental ideas, which may give the illusion of success. Regularly assess the impact of ideas to ensure meaningful progress. Ultimately, the key is to adopt a strategic approach to both innovation and growth, ensuring they complement each other rather than competing. And this has come in handy while building Nected. What strategies have you found helpful in your startup journey? #nected #srartupgrowth #innovation #entrepreunership #leadership