Chapter 7: Risk and Return

Stanford University,
University of Oregon,
University of California, Davis

A new venture that creates a novel solution to a problem will be subject to uncertainty of outcome. An action in an uncertain market is sure to experience a risk of delay or loss. It is the entrepreneur’s task to reduce and manage all risks as much as possible.

Attractive new ventures can be designed to grow as demand for their products increases. Furthermore, it is hoped that economies of scale will be experienced so that as demand and sales grow, the cost to produce a unit of product declines. It is also helpful to have economies of scope so that cost per unit decline when fixed costs are spread over a wide range of products. Industries based on network economies often see the emergence of an industry standard as a result.

1. “Realities of Consumer Internet at Scale” with John Lilly, Greylock

2. “Motivation Through Equity and Risk Taking” with Bill Gross, Idealab

3. “Solve Only Real Problems” with Julie Zhuo, Facebook

Continue to Chapter 8