Xpanse Inc
Published in

Xpanse Inc

The Downside of a Wrong Turn

Strategic Risk Management at Startups

Wouldn’t it be nifty to have a risk sign for your startup leadership team?
Wouldn’t it be nifty to have a risk sign for your startup leadership team?

My Wrong Turn Startup

I joined one of my previous startups to build the product and engineering teams. We were angel funded and had just enough cash to hire a bare bones product development team. Once we got our first product to market, the “upside plan” imagined, we’d certainly close a Series A funding round. We went from a clean sheet of paper to a first customer in six months and had about three months of cash left. We spent the better part of that time iterating with customer number one and beating the bushes for proof we could attract more customers. We talked to every VC that might have interest in our space. Nobody ponied up. Running on fumes, we did a layoff and gave ourselves a pay cut.

  1. Failure to get funding
  2. Inability to grow staff to operating scale
  3. Key employee retention risk

We Love to Focus on the Upside

Startup leaders are in sell mode from the beginning, working to help other people imagine the upside potential of their vision. Their focus is creating and articulating a strategy and plan for success. Getting momentum off the starting blocks requires selling in investor conversations, customer pitches, and recruiting calls. Coffee chats with network connections are frothy with the potential of the idea, the plan, the upside!

Getting Punched in the Mouth

But things so often go sideways. Startup leadership teams should have an aligned perspective of the risks they face, their probability, and actively manage them with the same probing tenacity they do their product development plans. If they do, they will be more likely to predict and duck a risk.

Startups could use a version of this caution sign.
Startups could use a version of this caution sign

Wearing your Startup Mouthpiece: Downside Planning

Startups have business and financial plans that assume positive outcomes like percent of TAM they can attract, customer willingness to pay, why their special sauce is somehow untouchable by competition, ability to clear regulatory hurdles, or reduced costs over time. They review, dissect, and pivot as they imagine upside. Having a plan for downside is as important as your upside plan.

Attack the Risk Before it Attacks You

Plan a quarterly risk bash with your leadership team. Keep a list of your risks, prioritize them based on probability and impact, and assign the biggest ones to those leaders who have incentives aligned to correct them. People focus on incentives. Set goals specifically targeting those risks your functional leaders should be managing.

The Risk Bash

  1. Invite your leadership team to a risk brainstorming session
  2. List the risks
  3. Give out five votes to each participant and vote on those you individually consider most significant to the business
  4. Sort the risks based on votes to see how aligned you are
  5. Debate where you see disagreement on priorities. Adjust as you learn.
  6. Go through the risks and estimate severity of loss potential. This is the downside to the business.
  7. Estimate the probability. This is the chance you guess the risk will emerge.
  8. Score the risk. Risk = probability * severity of loss
  9. Assign the biggest risks to the most relevant org leaders.
Severity and probability in risk scoring

Leadership Goals: Upside and Downside

Goals are generally focused on upside. People focus on incentives. By adding risk management into goals, you’ll get focus there too.



Xpanse Inc is building the modern OS for the greater mortgage industry

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Dave Thomas

Engineering and Consumer Platform Leader @Xpanse; Product design, technology platform strategy, and ground fighting geek in Seattle