Identifying black swans
All start-ups face different uncertainty, and the challenge for each founder team is to determine how much uncertainty to accept by using the enhanced risk management model. Continuous risk assessment will isolate any events that lie outside the regular expectations of the start-up. A newly established company will have no past that can point out the possibility of such surprises (black swan event) which might have ameterial impact on the outcome of funding events or terms of a customer contracts. However, do not try to kill any black swans as they will return in growing numbers. Keep a record of these events and learn from them.
Structured assessment of risk
A dynamic review of the firm’s risk profile lowers the uncertainty of not being able to identify a problem and to possibly forgo options to mitigate the impact. Risk identification is followed by an estimation of risk which companies often simplify by only assessing the impact and the likelihood of the event. Academic research has found that there are further dimension to be considered to identify the causes and elements of risk and which can be aggregated in a comprehensive model of seven parameters that we use at Nidobirds Ventures which form the basis of our Continuous Due Diligence approach that we market to family offices, venture capitalist, private equity and banks as well as to start-ups. Our risk scoring bears a weighting of the criteria to reflect the risk attitude of the individual or the organisation based on personally experienced risk. Regularly updated it becomes an intrinsic part of your knowledge management.