Posted by aj in When you’re starting a software company, your two biggest risks are:
- Technology risk — the risk that you can’t make the product you want
- Adoption risk — the risk that customers don’t want the product you make
In my experience, startups usually overestimate technology risk and underestimate adoption risk. There are two reasons for this.
1. Technology Risk is Declining
As the software market matures, technology risk is actually declining for all but the most ambitious projects. Simply put, there is now a lot of really good infrastructure in place (development languages, open source tools and platforms, hosting infrastructure, turn-key cloud computing platforms, and of course the worldwide web itself). Just as important, there are also a lot of really smart technology people who know how to use these powerful building blocks to make pretty much anything you can dream up. Don’t get me wrong, software development isn’t trivial or a slam-dunk, and many ships have foundered on those shores, but the risk is declining and generally over-emphasized.
2. Disbelievers Don’t Build Products
Passion for an idea is the bedrock requirement of being an entrepreneur. Entrepreneurs work with investors and employees who also believe strongly in the mission. After all, who would hire a marketing director, a developer, or a QA person who said “It’s kind of a dumb idea, but what the heck, I’ll give it a whirl.”?
This makes adoption risk that much more dangerous. It’s typically underestimated by the entire organization.
This organizational blind spot can play out in three different ways:
- Bad ideas that should never have been funded
- Good ideas that were flawed in execution (this is often cleverly disguised as technology risk, as the dev team scrambles to revise the product to match actual customer needs)
- Well executed ideas without a clear path to market (or without a realistic level of funding to get them to market)
Fortunately, a well-run research effort can reduce the risk of all of these types of failures. More on that in a future post.
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