Shaan Puri’s Framework for Mitigating Risk

Shaan and his partner, Sam Parr, have a show that has captured my attention as of late. It’s called My First Million and I listen religiously for a few reasons:

They have real valuable insight
They aren’t agreeable
They don’t need money or fame (and you can feel it()
They’re hilarious

Risk is an unavoidable truth in the real world.

In a short (17-minutes) and impactful episode, Shaan offers a simple, clear, and compelling framework for understanding risk For context, Shaan is a successful entrepreneur who has exited several companies and demonstrated success numerous times in a number of different ventures. His framework is so good that I figured I’d share it with you. Here are the different types of risks according to Shaan:

1. The Risk of Mediocrity. This acknowledges the trap of thinking that failure is the biggest risk. Starting and failing a start-up quickly isn’t nearly as dangerous as starting something that isn’t a clear failure and it’s also not a raging success. This steals your time and resources because quitting isn’t the obvious choice.
2. The Risk of Safety. This counter intuitive type of risk references that your own safety can prevent you from taking the actions required to achieve your goals and desired outcomes. Remarkable accomplishments require mobilization. If you’re too safe to move, you’re guaranteed to not reach your goals.
3. Eyes Wide Shut Risk. This acknowledges the danger of assuming an action is safe when it’s not. The only thing more dangerous than taking an action that has risk is taking an action with hidden risk that you perceive isn’t risky at all. (i.e. the housing collapse of 2008.)
4. Knowing the Difference: Market Risk vs Executional Risk vs. Technical Risk. For market risk, you can minimize risk in all other areas, but if the market doesn’t want your thing, you will surely fail. Many projects cover market risk by paying a premium for an idea that has shown some market adoption. Doing so takes on executional risk. If the idea is proven in the market, the risk then is whether or not you can execute on the idea. The last type of risk is technical risk, which Shaan describes beautifully with the example of a pizza making robot. If, for example, someone set out to develop a robot that could make the perfect pizza every time, they would surely have a valuable product for Domino’s Pizza and every other big player in the pizza game. The risk here isn’t market risk or executional risk, but the simple risk of whether or not the technology can deliver on its promise.

Risk is here to stay. The key is knowing what kind of risk you’re taking when you take it.

Good Luck.