Risk Management in the Early-Stage – Weekend Reflections for Leaders

Risk Management:

Over the last several weeks, we have been sharing some concepts for leaders considering making a transition from a large company to building the next chapter of their career in a smaller, early-stage venture.

Leaders who have built an effective set of skills while working for a large company are needed in the early-stage to help bring innovations forward in the market. The risk of all of us being “Amazoned” in the not-too-distant future is real. Being on the forward edge of innovation in the early-stage is one way to stay ahead of the threat of becoming extinct as marketplaces become more efficient in serving customers.

The focus for today’s topic is on managing risk when leading a business in the early-stage marketplace.

One of the areas of significant change for senior leaders from large companies moving into the early-stage is how to manage risk across a number of parameters. The area of risk management is one of the more critical areas to assess, but it is also one of the least understood and appreciated in planning a career shift into the early-stage.

Defined below are a few broad categories of risk that are important to consider:

Product validation

Senior leaders, especially in commercial roles, in large organizations have little to no experience determining the validation of a product (quality, efficacy, safety, repeatability, etc.) or its market readiness to enter a trial or be sold in the marketplace. These decisions are typically made in silos in R&D teams. In some extreme cases, a decision to withdrawal a product is made by the executive committee of a large company.

In early-stage companies, many times it is a small senior leadership team that is tasked with ultimately making the decision if the product is ready to go to the next stage. Yes, there are regulatory consultants, key opinion leaders, and others that express opinions, but in the end, it is the senior team/C-Suite that is tasked with making the final decision. This is an exciting but also gut-wrenching experience for leaders transitioning into the early-stage world. Even the most seasoned early-stage veterans will often describe this as always being a difficult decision.

Quite often early-stage companies are bringing products to market that meet a clear unmet need. The studies to validate these products are often not as robust as one would typically see coming out of the R&D teams at a large company. There are always trade-offs of time and money in the early development of a product that force early-stage companies to make some difficult trade off decisions to get to market. This is not to say that these are reckless decisions, but the reality is that there is often a bit of gray area where the answers are not crystal clear, and senior leaders are in the position to make a decision and not rely on some other “department” to make the tough call for them.

Legal Risk

This area could be broken down into several areas but principally there are contractual risks, compliance risks, investor risks and patient safety/product risks. Senior leaders in large companies are typically accustomed to having large legal teams provide very clear guardrails on how to operate in the market, sign contracts, and validate product readiness. In the early-stage, senior leaders often obtain legal advice from a small firm or individual lawyers who present risk on a scale from high to low. They ask the business leader to decide, “Where do you want to land on this risk scale?”  This accountability for the legal risk of the business is a new experience for most leaders making the transition from a large company to the early-stage.

Financial Risk

Beyond capital raising to support an early-stage business, many of the financial risks are similar across large and small companies, but the major difference in early-stage companies is that there may not be that much cash runway or financial levers to rely on when plans don’t come together. The financials risks or making trade-offs on product selection, inventory management, IT investment etc., are not new to the business world. However, it is a new experience for leaders transitioning from large companies who now find themselves in the decision-making position of determining what level of financial risk they are comfortably declaring for the entire company.

As leaders contemplate managing risks in both large and small companies, the reality is that there are risks in managing any business. Leaders in the early-stage are simply much more exposed to those risks and much more responsible for the outcome of decisions they make in managing the risks.

Strong leadership is needed in the early-stage marketplace and leaders from large companies have the skills and experience to create great value at the forward edge of innovation. As we look to build and strengthen our leadership over a long-term career journey, the early-stage market provides a wonderful environment for leaders to learn, grow, and bring world-leading innovation to the market.

How can I help you today? My mobile is 269-370-9275 and my email is david@harvesttimepartners.com

Please download some FREE resources at www.harvesttimepartners.com I hope you find them helpful in your journey.

Also, for those leaders in healthcare, the opportunity to be at the forefront of creating and scaling life-changing innovation resides in the early stage. This sector needs strong leaders like yourself to drive innovation in the years to come. I wanted to share a link to a program specifically for leaders in healthcare who are looking for insights into building the next chapter of their career in the early-stage. I was asked to contribute to this program based on my experience of leaving a large healthcare company and building my career in the early-stage. Please take a look at the link below.