Running Lean, 2nd Edition

Chapter 4. Prioritize Where to Start

Now that you have a list of possible models, the next step is to prioritize where to start. Otherwise, it’s easy to fall into the trap of making marginal progress, only to get stuck later.

Incorrect prioritization of risk is one of the top contributors of waste.

What Is Risk?

Before moving on, it helps to define what I mean by risk. We know that startups are highly uncertain, but uncertainty and risk aren’t the same thing. We can be uncertain about a lot of things that aren’t risky.

Douglas Hubbard makes a clear distinction between the two in his book, How to Measure Anything (Wiley):

Uncertainty: The lack of complete certainty, that is, the existence of more than one possibility.

Risk: A state of uncertainty where some of the possibilities involve a loss, catastrophe, or other undesirable outcome.

The good news is that the Lean Canvas automatically captures uncertainties that also are risks—the loss here can be quantified both in terms of opportunity costs and real costs. But not all these risks are equal.

The way you quantify risk in your business model is by quantifying the probabilities of a specific outcome along with quantifying the associated loss if you’re wrong. This is a key step to prioritizing what’s riskiest on your business model and determining where to start.

For instance, in the “How I Iterated This Book” case study from Chapter 2, I didn’t consider pricing for the book as high risk. The reason for this is that even though the loss of ...