discipline: Below is a post of mine that went largely ignored. It was meant to illustrate the very speculative nature of start-ups and immature companies. At every stage in the commercialization cycle of a new business, management must take into account and mitigate the various forms of risks that are present. No matter how experienced, skilled, or forward looking management is, there are going to be circumstances that are beyond their control. There is a direct relationship between risk and reward: the greater the potential upside, the greater the risks involved. (As an aside, it's worth noting that the converse is not necessarily true: situations that involve great risk sometimes have little or no upside. These are stupid risks to take, and the shareholders must decide if mangement took any of these. It's also up to the members of the board to decide, if the risk(s) is now too great, for the potential reward.
For anyone interested in playing a little game, please answer the following questions. The more responses, the larger the sample, the more accurate the survey. Optimists and cynics are not only equally welcomed, but are encouraged to participate.
On a scale from 0% to 100%, please list the percentage of risk you think has been eliminated in each category for Cryoport. Please be realistic and objective. There is no such thing as 100% of risk being eliminated, nor is there 0% chance for opportunity. By the very nature of its definition, risk exists in any situation where there is a possibility of an outcome that we would not like.
Unforeseen circumstances and their negative consequences are the very essence of risk. Since we cannot predict the future, there is always going to be uncertainty, and hence, there is always going to be some percentage of risk. Conversely, there is always going to be some percentage for a favorable juncture of circumstances and the creation of opportunity.
1. What is the chance that you've identified a genuine market need?
2. What is the chance that your addressable market is as big as you think it is, and that it is growing?
3. What is the chance that you can actually execute your business plan and implement your innovation?
4. What is the chance that you can make a large enough profit on your product?
5. What is the chance that you have assembled the right management team to do the job?
6. What is the chance that you have assessed your competition correctly, both in size and competitiveness?
7. What is the chance that you don't get sued for IP infringement or something else.
8. What is the chance that you won't get buried in regulatory red tape domestically or internationally ?
9. What is the chance that you can raise money, it's enough, and you can raise money again if you need to?
10.What is the chance that nothing else goes wrong, including the the economy, the soundness of you business strategy, et al.
I like the Cryoport story, but then again, its a story that really isn't very novel. There are a myriad of companies, both private and public, with the same story, or an even better story. I am just trying to illustrate, that just because, a company has a good story, doesn't mean it's a lay up...far from it. The odds of the kind of success, that people are expecting out of Cryoport, is about 30%. It is that high largely because they now have experienced management.
Otherwise, it would have about an 18% chance, and that is in good economic times.
Capital is only one area that is critical for success, you take your eye off the others, and you lose track of the big picture. That is why its so difficult for start ups to become successful.
I'll illustrate my point, by answering the questions that I posed.
I'll be extremely generous, and give a 90% chance of eliminating all the risks in each category.
Individually, the risks may seem manageable, but collectively, they represent a larger obstacle to overcome for an immature company. You might take comfort in the fact that any one of these risk factors presents only a 10% chance of affecting the company.
However, the probability of surviving all ten risk factors( assuming that each risk factors is statistically independent of each other) is the product of multiplying the percentages...35%.
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