Playing with Fire

Mitigating risk is an important part of business strategy – enough so that entire departments or teams are often devoted to risk management. Going through training session after training session, consultant after consultant, many managers understandably fear risk and uncertainty.

But for most early-stage startups, venture capitalists have much to teach about risk tolerance, and making the case for increasing exposure to risk. The Wall Street Journal notes that of 10 startups, three or four will fail completely, but another three or four will not return the original investment.[1] With the expectation that many startups will fail, venture capitalists have both a perceptive eye and a tough stomach to ensure that investments are carefully placed for long-term gain.

In a 2013 Forbes article, Steve Culp, of Accenture’s Finance and Risk Services, speaks to need to increase risk to stimulate innovation. Culp notes that “innovation and risk management seemingly do not naturally go hand-in-hand in many peoples’ minds,”[2] as he explores the silver lining to increasing risk in business. Culp speaks to two specific corporate structures that do a disservice to innovation. First, he cites the use of “stage gates” in selecting new projects. He notes that, “in many cases, the stage gating process is too focused on re-enforcing what the company does well today and the funnels end up producing only weak, incremental ideas that come to market slowly and lack emphasis on new areas for expansion.” Arguably, it’s not difficult to find companies that are aligned with this trajectory, making minimal gains to keep market share, rather than innovating. Culp also speaks to culture barriers in corporate settings, noting that, “another common impediment to innovation is an existing corporate culture that overly celebrates and rewards success.” With attention on metrics, sales goals, and other analytical focuses, it’s easy to lose sight of innovation when meeting benchmarks will suffice. Such cultures may even deter innovation, overtly focusing on guaranteed successes and lacking space for the possibility of failure.

Culp summarizes a “best practices” for innovation within corporate structure as three key elements: flexibility, speed, and control. He recommends that, “rather than placing all their bets on one or two experiments, companies may want to consider building a portfolio of early innovation investments that act as options.” Since “successful [innovations] often [require] speed, companies can use rapid experimentation and agile development to increase their chances of filling their innovation portfolios with new products and extensions.” Lastly, Culp notes “venture capital firms use controls, but these controls typically are designed to increase risk tolerance, fostering a culture that embraces the logic of intelligent mistakes.” By shifting the focus from risk avoidance to a safe space for innovation, companies of all sizes can benefit from playing with fire.

Have you seen innovative projects or suggestions stifled within your company, due to risk aversion?

What kinds of projects might be possible if your company had a higher tolerance for risk?

On a related note, Gever Tully beautifully sums up this tradeoff between risk and innovation in his humorous TED Talk: “5 Dangerous Things You Should Let Your Kids Do.”




Project Management Tools for Startups

In project selection, many companies employ intricate strategies, rubrics, or other grading scales to determine whether a project aligns with strategy, resources, or current goals of the firm. Many of these processes are well engrained with larger organizations, but on the trajectory between startup and global firm, where do formal project management processes begin?

The strategic management within startup organizations is often traced to a founder or current CEO. Inevitably, the current leader must ensure that the management can both “respond to changes in the external environment,” as well as “allocate scarce resources of the firm to improve [the company’s] competitive position,”[1] keeping projects within scope, on budget, and on time. As a business begins to grow, formalities and preferences may develop – but may not necessarily be aligned with best practices in project management. Along with defining the strategic vision, a competent founder should also have knowledge of our resources pertaining to different project management models: net present value, payback, or perhaps even multi-weighted scoring charts. While a founder may not use more-commonly known project management terms like “pearls” and “oysters,” the argument could be made that a founder may have the keenest sense (among the management team) of early-stage strategic alignment and organizational development., an entrepreneurial commentary by Oren Ellenbogen, argues that many project management tools are simply not aligned with startup culture. Instead of an external program or cloud service that can include “tasks hierarchy to the 5th level,” Ellenbogen argues that startups need the culture itself and the hands-on experience that permits adjustments: the tangibility that answers “the question… not how fast you are able to deliver things but how fast you are able to learn that you’re delivering the wrong things and make the adjustments.”[2] While this commentary makes a number of generalizations, it does speak to a larger concern: when running a startup company with limited resources, what kind of solution would benefit rather than detract from organizational growth? Startup purists may point to processes such as Steve Blank’s Lean Startup methodology[3], while tech-centric firms may look for another startup offering expertise in project management. The options are numerous and the marketplace clamors with overabundance.

Jake Gibson, founder of NerdWallet, gives an example of startup growth and project management options in Entrepreneur Magazine, guiding founders toward examples of success.[4] Notably, Gibson encourages founders to avoid “tool-itus” and to examine the longer-term costs of free or temporary project management solutions. In his example of options that have worked successfully for NerdWallet, Gibson shows the progression of using Trello, then later migrating to Kanban Tool. Gibson gives a threshold for formal project management, noting that, “keeping track of collaboration on various projects and product development becomes essential when you grow from more than a dozen employees.”[5]

On the spectrum of start-up to global firm, where have you seen formal project management processes (or software solutions) implemented? What was successful and what was not?


[1] In-class presentation; Ch. 2-5