Chapter 6 of 12

Chapter 6: Risk Identification and Mitigation

The Business Risk Mapper and Pre-Mortem exercise.

Playbook Chapters
What You'll Learn By the end of this chapter, you'll know how to map and categorize business risks, use the Pre-Mortem technique to uncover hidden threats, and understand critical data governance requirements.

Risk is Inevitable. Unmanaged Risk is Fatal.

Every startup faces risks. The difference between success and failure is whether you identify and mitigate them before they become crises.

The Business Risk Mapper categorizes threats so you can prioritize what to address. Not all risks are equal—some will kill you, others are just noise.

The Four Risk Categories

Market Risk

"Nobody wants this."

Mitigated by: Validation in Playbook 02. Evidence of demand.

Product Risk

"We can't build this."

Mitigated by: Technical feasibility assessment. Capability audit.

Financial Risk

"We run out of money."

Mitigated by: Unit economics. Burn scenarios. Fundraising.

Team Risk

"We implode."

Mitigated by: Culture alignment. Clear roles. Agreements.

The Risk Matrix

Use a standard Probability × Impact Matrix to score and prioritize risks:

Red Zone

Score 15-25

Existential threats. Proceeding unmitigated is negligence. Must address before building.

Yellow Zone

Score 6-12

Strategic threats. Must be monitored and planned for. Have contingencies ready.

Green Zone

Score 1-5

Operational noise. Acceptable risks. Don't over-engineer mitigations.

How to Calculate Risk Score

Risk Score = Probability (1-5) × Impact (1-5)

  • Probability: 1 = Unlikely, 3 = Possible, 5 = Almost Certain
  • Impact: 1 = Minor annoyance, 3 = Significant setback, 5 = Company-ending

The Pre-Mortem Exercise

The Pre-Mortem is a powerful psychological tool to uncover hidden risks that people are reluctant to voice.

The Prompt

"It is 2 years in the future and the company has completely failed. What caused this?"

This reframing allows team members to voice doubts they would otherwise suppress. Run this exercise with your co-founders and early team.

Common Pre-Mortem findings:

  • "We built a feature, not a product."
  • "We depended on a single API that got deprecated."
  • "A competitor with deep pockets gave it away for free."
  • "The founders had a falling out over equity."
  • "We couldn't hire fast enough to meet demand."
  • "Regulations changed and made our model illegal."

Data Risk: The New 5th Pillar

For AI companies, data risk is now on par with market risk. It's not just about compliance; it's about survival.

Data Poisoning

If your training data is flawed, biased, or copyrighted, your model is a liability. Audit your data supply chain as rigorously as your financial accounts.

Prompt Injection / Leakage

Users will try to trick your AI into revealing system instructions or sensitive data. Implement "Guardrail" layers before the model sees user input.

Data Governance Risks

With GDPR, CCPA, and emerging AI regulations, data privacy is a feasibility constraint—not an afterthought.

Requirement The Question Feasibility Impact
Right to Forget Can we technically delete all traces of user data? Difficult in AI models and blockchain; may require architecture redesign
Data Residency Does our architecture support EU data storage? Multi-region infrastructure has cost implications
Consent Management Can we track and honor consent preferences? Requires purpose-built systems; retrofitting is expensive
The Retrofitting Trap If your architecture cannot support these requirements, it must be refactored before the MVP build. Retrofitting privacy compliance costs 10x more than building it in from the start.

What You Walk Away With

Risk Inventory

Comprehensive list of threats categorized by type

Risk Matrix

Prioritized view of what to address first

Pre-Mortem Insights

Hidden risks surfaced before they become problems

Compliance Checklist

Data governance requirements mapped

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Works Cited & Recommended Reading
Unit Economics & Financial Modeling
SaaS Metrics & Benchmarks
  • 7. SaaS Trends 2025-2026: 25 Definitive Trends Shaping the Industry. Modall
  • 8. The Great SaaS Price Surge of 2025: A Comprehensive Breakdown. SaaStr
  • 9. SaaS gross margin explained: What it is, and why it's important. Stripe
  • 10. SaaS Gross Margin Benchmarks and How To Increase Yours. Lighter Capital
  • 11. 2025 SaaS Churn Rate: Benchmarks, Formulas and Calculator. Vena Solutions
  • 12. How to Compare CAC Benchmarks by Industry. Phoenix Strategy Group
  • 13. How I Calculate the CAC Payback Period. The SaaS CFO
  • 14. The Rule Of 40: How To Calculate And Use It For SaaS. CloudZero
Pricing Strategy & Research
  • 15. What Is A Hybrid Revenue Model? Definition, Types, Benefits. Marketplacer
  • 16. How To Use The Van Westendorp Price Sensitivity Meter. SurveyMonkey
  • 17. How To Price Your Product: Van Westendorp Pricing Model. Forbes
  • 18. Van Westendorp Price Optimization Using LimeSurvey. LimeSurvey
  • 19. Using Conjoint Analysis for Pricing Research. Qualtrics
  • 20. Understanding Conjoint Analysis in Market Research. LimeSurvey
AI Costs & Unit Economics
  • 21. AI Pricing: How Much Does AI Cost in 2025? Monetizely
  • 22. The Best Cheapest AI Inference Services of 2025. SiliconFlow
  • 23. Welcome to LLMflation - LLM inference cost is going down fast. Andreessen Horowitz
  • 24. Avoiding The Looming AI Unit Economics Crisis. Moreland Connect
  • 25. Beyond Benchmarks: The Economics of AI Inference. arXiv
Burn Rate & Cash Management
  • 26. What is burn rate? What startups need to know. Stripe
  • 27. The Bill Gurley Chronicles: VCs, Marketplaces, and Early-Stage Investing. Macro Ops
Feasibility & Risk Assessment
  • 29. AI Project Feasibility Checker. LaSoft
  • 30. Technical Feasibility Study & Risk Assessment Framework. Incurvo
  • 31. Startup feasibility: How to know if my startup idea is good. Business Model Hacking
  • 32. Startup Evaluation Checklist: Essential Investment Criteria. Qubit Capital
  • 33. What Is a Risk Matrix? [+Template]. Atlassian
  • 34. How to Run Pre-Mortem Exercises [Templates Included]. Atlassian
Regulatory & Compliance
  • 35. EU AI Act Compliance Checker. EU AI Act
  • 36. President Trump Signs EO to Stop State Regulation of AI. Ogletree
  • 37. Executive Order Limiting State Power to Regulate AI. K&L Gates
  • 38. How 2025 state legislative sessions grew the AI patchwork. Engine
  • 39. CCPA Requirements 2026: Complete Compliance Guide. Secure Privacy
Templates & Frameworks

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