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.”




Handling risk like a startup: Lean project management

We examined risks very closely in our last class and I can’t think of a better example of risk in project management than those experienced at a startup. As an entrepreneur venturing out on your own, or with a small group, building up a business is a process of trial and error. You can become really passionate about an initial idea but once you’re out in the field talking to customers it may become obvious that the idea doesn’t solve their problem. Then it’s back to the drawing board!

Hopefully this realization occurs before you’ve arranged the people and resources needed for the business. Otherwise all the investments you’ve made can become a sunk cost. Many startups today follow a lean model where failure is incorporated into the project. Instead of starting full production on a product, prototypes (or a minimum viable product) are used to get feedback on the product’s functionality. A few, hundreds, or thousands of prototypes may be scrapped in the process. Dyson’s vacuum technology took 5,127 prototypes to get right (Dyson, 2011). Therefore, by testing and retesting ideas before fully going to market, entrepreneurs can mitigate the amount of risk they take on and get to know their customers better.

How can we apply the startup approach to project management?

Some projects, especially event-based, don’t allow for testing or mock runs. It would be extremely costly to simulate a concert in a particular location along with all the vendors that are scheduled to participate. Yet there are a few key elements from startups that can be applied to project management settings.

  • Address risk early and often
  • Monitoring relevant metrics
  • Continual learning and acceptance of failure

First, consider addressing risks early on. Even if this can’t be in the form of a prototype the project should be exposed to risks and tested. For example, does the project have enough designers to complete a new mobile app? Estimates may not be enough in this case. Instead the project manager could have the designers solve a small task (subset of the problem or project) together within a limited timeframe to test their capabilities as a team. Additional risks may crop up as a result of their collaboration together.

Next, identify metrics that relate to risk. Stakeholders are often focused on budget and deadlines but there are other ways to measure a project. Why not tie metrics into risks that were identified at the outset of a project? In class we discussed the case of Futuronics which carried a greater amount of risk due to their industry and future-oriented products. If the company was able to quantify risks, they could better report on them and gain stakeholder and sponsor attention (Feldman, 2012). For Futuronics, metrics could include number of competitors looking to enter the industry, amount of patents into similar technologies, or number of qualified engineers throughout the country.

Lastly a project’s risks should be considered in terms of the overall team and organization culture. If learning and failure are not embraced then it can be harder to have conversations about risk. When the message from the top-down is “We’ve been doing this for years and it’s the right way!” there are natural blockades to identifying and handling risks in projects. Furthermore failure can lead to insights in a project that were not initially considered.

Questions to Consider:

  • What is the most challenging risk you’ve faced in a project? Did you have a contingency plan?
  • Would you be able to put the three elements, mentioned above, to action on projects in your company?



Dyson, J. (2011). James Dyson: In praise of failure. Retrieved from

Feldman, J. (2012). Project Management Gets Lean. Retrieved from