In this solo talk, Dharmesh Shah outlines three primary types of risk that startups face—product risk (the ability to build the product), market risk (the existence of a sufficient market and viable pricing), and execution risk (the founder's ability to avoid countless operational mistakes). He argues that most founders mistakenly focus on mitigating product risk by building a product early, even though in the vast majority of cases the product can be built. Instead, he stresses that market risk is the critical threat: without validated demand, a product cannot sustain a business. Shah advises founders to prioritize reducing market risk by quickly creating a minimal version of their product, putting it in front of customers, and charging for it to confirm demand. By doing so, founders can discover market absence early, conserving the most valuable resource—time—and avoid the regret of building a product that no one wants.
Chapters
Greetings. So today I'd like to talk about a common mistake that founders make all the time. And I know this because I've made this mistake myself. And to kind of understand this particular mistake, it's important to understand kind of the types of risk in a startup. So let's, let's talk through them. Number one risk is product risk, that you have this idea for a product, but there's a risk that you just won't be able to build it. That's product risk. Number 2 is market risk. And market risk is you're able to build a product, but there's not a sufficiently large market. And, you know, the pricing doesn't work. There's not enough customers out there. And that's market risk, that you've got the product, but there's not enough of a market to kind of sustain and build a business around. And the 3rd type of risk is execution risk, which is you can build a product, there's a market out there, but you're gonna make too many of the 100,000 possible mistakes you can make as a founder. That's just fundamental raw execution risk. So here's the mistake, and you can avoid one of those 100,000 mistakes simply by listening to this advice, which is most founders, especially in tech companies, will always kind of start with that product risk. So they'll, you know, as soon as the company starts, they're in there writing code, they're building the product, which is, I think, a great thing. You should definitely build your product as early on as possible. but the motivation for building your product is a little different. What you're really doing in that case is you're mitigating product risk. You're kind of limiting the possibility or reducing the possibility that you won't be able to build the product. And I'm going to posit to you that in vast majority of cases, 95, 99% of the cases, whatever product you envision, you're likely going to be able to build. Yes, some of us are putting people on Mars, inventing new energy sources, And those things are hard, and there's definitely real product risk there. But in most startups, the product you envision, you're likely going to be able to build. Let's stipulate that. And so the risk you should be addressing is not product risk. The risk you should be addressing is market risk that says, okay, well, there's no sense in going off and building a product for a year or 2 years, even if it's a great product, if there's no market for that product. Because at the end of the day, without a market, you're not gonna be able to build a business. And so instead of jumping right in and trying to mitigate product risk, what founders should be doing is mitigating market risk. Now here's the subtlety, that the best way to kind of mitigate market risk, make sure that there's a market for the product, is to actually have an early version of the product and to charge people for it and put it out there. So, but the kind of lesson to carry away is that you should resist the temptation to kind of reduce your product risk. That's not usually the thing that's going to kind of get you. The thing that's likely to get you is the market risk. And since time is kind of the most precious commodity that you have, you are much better off reducing that market risk, or if there is absence of a market, learning that as early in the process as possible, not after you've successfully built a product. So Attack that market risk. That's the most important one. Hope that's helpful. Thanks.
