Execution vs. Market Risk

Today’s post is more of a tactical post where I will write about something interesting that I learned today so that I can internalize it and I don’t forget it(:

So today I was watching an interview with Seth Sternberg (CEO of Honor) and at one point he had a very interesting point that I had heard before but hadn’t quite fully grasped. In the interview Seth talks about this distinction between execution and market risk – the two types of risk that an entrepreneur can face when starting any company.

He argues that there are companies where you know that if you can deliver product X at Y price/speed/etc. there will be a market for it. In other words, there is clear demand for whatever product you will sell and the real risk is not being able to execute a plan. He argues that there are other companies where the risk is that the entrepreneur doesn’t know if the market will adopt his or her product or not.

He goes on to explain how he thinks that most companies distinctly fall in either of these categories AND that entrepreneurs tend to self-select into them based on their experience. This last part is particularly interesting. Seth argues that first-time entrepreneurs tend to build companies that are all about market risk because they don’t necessarily have the execution skills and/or expertise needed to build companies that rely mostly on “execution”. I use quotations here because obviously all companies require a substantial amount of execution. He points to most of the social companies like Facebook and Pinterest as examples of “market risk” companies. I think he would categorize Airbnb in the same bucket. However, he mentions the example of Uber as an “execution risk” company, which begs the question what about Lyft. It’s pretty much the exact same model but it was started by a pair of first-time founders. In any case, I think that it’s an interesting heuristic worth consider as I work on building the company(: