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Reimagining Startup and Enterprise Innovation

Three Types of Business Risk on the Path to Success

Guest Author

 

The blog post was authored by Kyle York, Vice President of Product Strategy for Oracle Cloud Infrastructure and General Manager for Dyn Global Business Unit (GBU)

 

No one starts a business only for it to fizzle out and die, but scaling a startup is fraught with risk.

There are three major risks to startups as they scale: execution, technology, and the market. I’ve experienced all three. With each risk comes its own challenges and opportunities.

Execution risk

How does your business align with your vision, measure up against core key performance indicators, and execute on its mission by bringing product to customers? The answer to this question is what makes or breaks your company. The process of scaling a startup is hard and tumultuous. Scaling fast makes it even harder, but scaling slowly is worse, and sitting still is a death trap -- especially in technology.

How fast should you grow? How much money will it take? How many management layers do you need? How do you battle churn? How do you innovate against juggernauts and ankle biters alike? The quickest, most iterative part of your business needs to be the part where strategy meets execution.

But if you overcorrect, you're doomed. It's a delicate balancing act, and only you can figure it out for your business. Pay attention to expenses and gross margins. Make sure your investment ratios are comfortable -- for you, not based on some random comparison to like companies. Is your research and development investment right? Is your go-to-market investment at the correct pace?

It’s important for startups to nail their foundational execution, but also to continually expose what I call “growth levers.” These ensure that when one bet fails, or the inevitable hiccup happens, you’ve got other plays well drafted and in the lab. You need to always be innovating your business model and approach.

Technology risk

Technology risk cuts both ways. There can be internal issues -- missed deadlines, broken roadmaps, haywire API scripts, cyberattacks, staff departures, etc. There can also be external problems caused by dependencies on programming languages, integrations, and open source technology, or by innovations that disrupt the technology markets you rely on.

It's tricky to use technology to meet customer demand, deliver a value proposition that has staying power, and stay true to your differentiation all at the same time.

The keys to hedging against technology risk are to innovate, bite off what you can chew and over-deliver on your product roadmap. It's also important to ensure your dependencies are limited. If you use open source technology, be sure it’s here to stay. Don't customize it so much that it prevents you taking advantage of future innovations. Be sure you have resourced appropriately, and don’t get complacent when your technology superiority and engineering excellence are challenged.

Market risk

This one takes many forms, and it is the risk you have the least control over. On the macro side, stock market performance, currency values, job growth rates, and other factors can threaten your business. On the micro side, it could be about market moves by competitors, mergers and acquisitions, investments, and new products or innovations. Either way, the market never sits still, and you need to prepare your business to succeed in both the good times and the bad. The ball won’t always bounce your way. Will you be ready?

When it comes to growing a business, there is nothing more important than having your head on a swivel in the market. All entrepreneurs should become encyclopedias on their markets, technologies, customers, competitors, and trends. Do you know your competitors better than they know themselves? Are you participants in a market or making one? Are you doubling down when the market is ripe and holding the front when the market is bear? In an ever-changing and volatile economic climate, the companies that win are those that get a little lucky, but also those that take very seriously how the markets can influence their short- and long-term visions.

In my career, the ultimate convergence of these risks came when, at Dyn, we were considering testing the market for fundraising, an initial public offering or an acquisition. We eventually sold to Oracle, where we still face these risks everyday as we transform into a cloud business.

 

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