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Diagnosing and managing unforeseeable uncertainty to improve venture capital returns

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Leading fundamentally novel products and services to successful market introduction is a great challenge. Whenever a startup company tackles an unknown market or utilizes a new technology, it will encounter unknown unknowns ("unk unks" in engineering speak). Unk unks are unforeseeable influences or events that emerge during the development of the business and can be neither included in the business plan nor mitigated by traditional risk management techniques. They need a more flexible and experiential approach to management than existing business or incremental innovations. But if unk unks are "unforeseeable", how can a management team prepare for them? Isn't that a contradiction, preparing for something that is unforeseeable? This paper demonstrates the diagnosis of the types of uncertainty at the outset of the startup, or project. Yes, unk unks are fundamentally unforeseeable, but their presence can be predicted by diagnosing gaps in the team's knowledge about the project. Any important gap means that unk unks lurk (although the team can't know what they are). A systematic diagnosis of uncertainty, at the outset, is shown via the example of Escend, a startup company that tackled a novel market.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2004/2004-101.pdf

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Copyright INSEAD. All rights reserved