284 Planning and Forecasting
Critical Risks (1–2 pages)
Every new venture faces a number of risks that may threaten its survival. Al-
though the business plan, at this point, is creating a story of success, there are
a number of threats that readers will identify and recognize. The plan needs to
acknowledge these potential risks; otherwise, investors may believe that the
entrepreneur is naïve or untrustworthy and therefore reject investment. How
should you present these critical risks without scaring your investor? Identify
the risk and then state your contingency plan (see Exhibit 9.12). Critical risks
are critical assumptions, factors that need to happen if your venture is to suc-
ceed. The critical assumptions vary from one company to another, but some
common categories are: market interest and growth potential, competitor ac-
tions and retaliation, time and cost of development, operating expenses, avail-
ability and timing of financing.
Market Interest and Growth Potential
The biggest risk any new venture faces is that once the product is developed,
no one will buy it. Although there are a number of things that can be done to
minimize this risk, such as market research, focus groups, beta sites, and oth-
ers, it is difficult to gauge overall demand and growth of that demand until
your product hits the market. This risk must be stated but tempered with the
tactics and contingencies the company will undertake. For example, sales risk
can be reduced by an effective advertising and marketing plan or identifying
not only a primary target customer but secondary and tertiary target customers
that the company will seek if the primary customer proves less interested.
Competitor Actions and Retaliation
Having worked with entrepreneurs and student entrepreneurs over the years, I
have always been struck by the firmly held belief that direct competition either
didn’t exist or that it was sleepy and slow to react. There have been many cases
EXHIBIT 9.12 Sample critical risk.
6.2 Group’s lack of experience in starting own company Within our present team,
we realize that we lack the real world experience in starting up a company, but we feel that
this can be overcome in two different ways. First, we plan on hiring someone who has a
background in managing a startup company and has a history in working with e-commerce
businesses. Secondly, we will draw on family expertise within our group. William Smith’s
family has started a successful golf retail store that has been in operation for nearly 20 years
and is just starting to utilize the Web to foster continued growth. Jim Meier ’s father is the
managing partner of the largest public accounting firm in western Massachusetts. Mike
Santana’s uncle is an investment banker and has some good friends in the venture capital firm
Canyon Partners in Beverly Hills. Pat Crown’s father is the founder and president of Mathtech
Corporation in Boston, Massachusetts. Mr. Crown’s company develops math software.