You don’t need to look far to see risk in innovation leadership. Yet many entrepreneurs lack a sufficient understanding of how to judge and deal with risks. In this article we introduce a model for classifying risks in innovation leadership. In turn, we discuss how some of these risks can be reduced or averted, and in some cases even embraced and reframed to mean something positive.
According to some statisticians, more than half of all startups fail within their first five years of existence; figures on innovative startups are even bleaker. A first round of investment is no guarantee for success, either- the generally accepted figure is that roughly three-quarters of venture-backed firms won’t ever return their money.
“One of the inherent virtues of innovation leadership is that the excitement of the opportunity outweighs the perceived risks of loss and failure. ”
Low probability – low impact risks: to be ignored
Risks that have a low likeliness to occur and low potential impact are not worth spending much, if any, time on.
Low probability – high impact risks: to be insured
Risks that have a high potential impact but a low probability can often be averted through insurance. This is desirable when the benefits of insurance are likely to outweigh the costs.
High probability – low impact risks: to be averted
These risks, due to their low severity, are as inconvenient as they are avertable. Examples of risk in this category are: a key team member becomes ill just before an important deadline; a computer crashes with all the customer data information.
High probability – high impact: to adapt to
The risks in Quadrant 4 are of key concern for innovation leadership (and any existing business), as they are too costly to insure and cannot simply be ignored or averted due to their severity.These risks are the real company killers, often tapping into the core beliefs and (informed or non-informed) assumptions that businesses have built their product or services on. All elements of the enterprise (market, competition, leadership, operations, legal, finance) are exposed to such risks.