It is extremely important to identify the risks of a venture because even in optimal conditions, many elements are required for success. Take the following scenario:
- Management is capable and motivated 90%
- Market demand is as expected 90%
- Production is scaled up as planned 90%
- Competition is held at bay and IP is defendable 90%
- Liability and litigation is avoided 90%
- Company has sufficient capital 90%
- Existing customers are able and willing to pay 90%
Success Probability .9 x .9 x .9 x. 9 x .9 x .9 x .9 = 48%
In the event that even one of these risks is not assessed correctly, and the chance of success is actually 50 percent, the overall probability success is reduced to 27 percent. Clearly every risk must be kept to a minimum.
This is a good top-level checklist for early venture validation research.