After listening to Vinod Khosla’s short podcast - Starting Greatness - I took some time to digest the concepts. What he concisely explains is that there is an inverse correlation between technological risk and market risk and if you think in terms of bets, risk-adjusted outcomes and ignoring failures then you come to some pretty interesting conclusions on where to play as an entrepreneur. Ultimately the way I see it is that if you have a vision for the future and you’re willing to endure a lot of pain but stay persistent on your deepest beliefs, you are well suited to tackle either high technical risk or market risk (but not both or neither). If this was a pitch deck intended for VC eyes, we would be looking at this in a visual quadrant, but instead I’ll spell it out for you.
Bottom Left:
When there is low technological risk and low market risk, you have market participants rushing to capture the gold. I would put this in the category of starting a fast food salad chain in midtown Manhattan. Everyone wants a quick salad for their lunch break, anyone can stand one up, and that’s why there are 1,000 of them! In this category you often have a trove of failures and a select group of winners who were right on a few things, namely, timing and customer experience. For example, think about the world where no one ever takes out an office lease and instead just rents a desk by the day, week, month or year. Imagine the ability to flexibly get in and out of that contract and move around freely to any location. That’s a big vision and many have attempted to come up with the solution to that future state. That is why we’ve seen so many entrants like WeWork, Industrious, Spaces and more who believe they can generate this future outcome for the corporate world. It’s not a large technical risk and the market participants are asking for flexible working conditions. To win big in this kind of category, you need to build your moat around value (where experience, quality and cost effectiveness meet perfectly in the middle) or find a singular market type to be hyper focused (luxury vs. economical choice or men vs. women or creatives vs. business professionals).
Top Left:
Where there is low technological risk and high market risk, you are in the business of creating a new market, habit or desire. I was working on a journaling software last year that was quite simple to build, effectively a word processor, but with a monetization strategy that was elusive. In order to grow it big, I needed to convince the market that journaling is not only good for them but is a necessity. I would have had to chip away at the marketing and the narrative long enough for the world to conclude that journaling is as good, if not better, than meditation and therefore it should be something that everyone needs to buy. That’s a sizable market risk but one that would pay off handsomely if achieved. Similarly, many new age marketplaces fit this category. In the early 2010s it was inconceivable to think that people would want to give up their couch or spare bedroom to host a stranger. The technical capabilities to build an online marketplace existed but the market for this kind of offering was non-existent. After a long enough period of time chipping away at adding supply and demand onto Airbnb, Brian Chesky and his team were able to define a new category of lodging and hospitality. They have been greatly rewarded for taking on that risk but there are a plethora of entrepreneurs who have not been so lucky. Whether due to timing, solution or otherwise, many entrepreneurs take this risk head first only to find out that the market doesn’t want what they’re offering. You can choose to pivot and keep figuring out what the market really wants (likely transcending quadrants) or continue to push harder in the direction of trying to educate the market on why this needs to exist.
Bottom Right:
When there is high technological risk and low market risk, you have immense execution risk but an insatiable demand for a solution. In this category you have outsized bets to cure cancer, create an operating system to control our brains, travel at supersonic speeds to see family and create therapeutics to live longer. To be bold enough to go after solving one of these problems, you need to be of the utmost category of visionary. You need to take humongous swings, put yourself in the face of irrational levels of risk and face insanely high probabilities of failure. This category looks like Thomas Edison solving for electricity, Alex Hannold scaling El Capitan with no ropes or Elon Musk launching SpaceX, Neuralink, Boring Company and Tesla. These people are so devoted to the cause and willing to lose it all to achieve the outcome that they took the “bet.” Where there is high technical risk and low market risk you are faced with seemingly endless upside in the advent of a success but your probabilities of failure are enormous. This is where few people dare to venture and thus you are in a category unto yourself if you wade into this risk pool.
Top Right:
High technical risk and high market risk is space travel, colonizing mars and often times pure fantasy. Holy hell is it difficult to pull off building a space shuttle and sheesh, I don’t know if I want to live on a gaseous planet like Mars. If you are bold enough to want to solve these problems, good on you! If humans one day take up the interest in getting off this watery pearl of a planet we live on and opt for the rocky surfaces of Mars then the visionary who decides to take on this problem, and succeed, will be lauded as the greatest of any generation. Until that day, I’m sticking to the quantifiable risks and knowable risk factors that exist in one of the other three quadrants.
If you want more analysis on risk taking and understanding where to take the risk, NFX does a great piece on why founders should take more risk here: https://www.nfx.com/post/founders-startup-risk-types/