Risk Culture in Startups – Why it fades away with time?

The board meeting at the startup was underway and the CEO proudly highlighted what he considered to be the most successful initiative of the company. The initiative had been embraced…

The board meeting at the startup was underway and the CEO proudly highlighted what he considered to be the most successful initiative of the company. The initiative had been embraced by customers and partners whole-heartedly and the signs of continued growth were very visible.

The head of business development, present in the meeting and responsible for that initiative was understandably delighted at the acknowledgement by the board. He subsequently made an unusually peppy presentation on his department to the pleasant surprise of all. Later on, the CEO explained about business development and its head:

“He’s full of ideas all the time. We tried several of his ideas earlier and they all bombed. When he came up with this latest one, I told him that this would be the last one we’d try. I also asked him to think through the idea and take full responsibility for its implementation. The results are visible. In addition, the business development head was so thrilled with the success that he took extra care to make a detailed presentation on his department, something that was sloppy, at best, earlier.”

Risk Culture - Contextually Defined
Risk Culture - Contextually Defined

The above highlights two important things: one, the role of the CEO in encouraging and nurturing ideas, in spite of past failures and two, the delegating of execution of the idea to its originator. All too often, the company culture is hierarchical resulting in a top down style of management. Where the CEO generally decides what to do and the rest of the organization simply executes. This implicitly assumes that the CEO has the monopoly on thinking. Of course, there are socio-cultural issues at work as well, typically visible in a class and hierarchy conscious society. In addition, the person who generates the idea and the person executing it are two different people.
This quite naturally leads to problems – of egos, of understanding, of expertise and so on. On the other hand, if the person responsible for the idea is made part of its execution, the practical aspects of idea implementation come to the fore. It is one thing to suggest an idea, quite another to execute it. Participation of people from different areas of the company in problem solving is a great way to build a strong culture of team work as well.

A startup is founded on risk-taking and its management. So how come in many startups as they evolve, there’s this hesitation to experiment, to try out new initiatives? After all, no one really knows what specifically is going to work. If they knew it, all startups would be successful. There’s this endless cycle of trying and experimenting, seeing the results, modifying activities and then dropping some initiatives, re-launching some and starting off others afresh.
One of the advantages of the startup is its ability to move fast. It makes mistakes faster, learns faster, launches faster, makes newer mistakes, learns,…..It is therefore critical that this culture of risk taking is encouraged and calibrated by the CEO. Else, it will be impossible to harness the intellectual capital of the people. There are market and customer insights that only those in daily touch with customers and partners have. It would be fool hardy not to listen to this group for their ideas and thoughts. Being afraid of trying new things is a sure recipe for failure for all companies, especially for a startup.

Creating and sustaining this culture of ideation, risk taking and managing it are therefore crucial for a startup. The entire company needs to be motivated to participate. Obviously, the effort needs to be calibrated in such a manner that, both, the cost of failure and the cost of trial need to be low not just for the startup but also for the customer or partner if they’re involved in the initiative. Quick and inexpensive course corrections need to be made based on results.

After all, jumping off a cliff without a parachute isn’t risk-taking, it is foolish.

What do you think?

[Guest article by Sanjay Anandaram, entrepreneur turned investor.]

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