Value w/o Risk? Wouldn't that be nice...

Help me think through how this episode applies to my situation. Start by asking what I am trying to change. Separate the episode's claims from your suggestions, and say when the notes do not support a claim. Use the transcript to find passages, then check the audio before quoting. Transcript: https://yuvalyeret.com/podcast/episodes/value-wo-risk-wouldnt-that-be-nice/transcript.md ## Published episode notes In this conversation, Yuval explores the intricate relationship between risk and value. He emphasizes the importance of understanding and managing risk to unlock potential value, particularly through de-risking strategies such as agile/iterative discovery-based execution. "Agile is risk-driven development - You're surfing that risk." 00:00 The Correlation Between Value and Risk 04:12 De-risking Strategies in Product Development 10:46 Agile as a Risk-Driven Approach Why Agile Is Really Risk-Driven Development – https://yuvalyeret.com/blog/value-without-risk-agile-as-risk-driven-development ## Transcript This transcript was edited from automatic speech recognition for readability. Speaker turns may be wrong or absent, and it may contain recognition errors. Check the audio before quoting or attributing a passage. Episode: https://yuvalyeret.com/scaling-ai-podcast/value-wo-risk-wouldnt-that-be-nice/ ## The friction around safe / scrum Wouldn't it be nice if we could create outside results without taking any risks? Think about it this way. If we look at the potential value of something and think through the risk that it entails, there is very often a correlation between these things. So if you think through, for example, our pension funds. So if you want to really grow your pension funds, You have some options. A safe investment would be putting all of the money in bonds. Not a lot of risks. Not a lot of risk, but also the growth potential isn't very high. So it would be somewhere here. I guess if you leave everything in your account, even lower potential value, maybe even negative zero risk because you know it's even covered by the government. But if you want to get more value you need to put some of the money in stocks but stocks do have risks. If you go for an index fund it's not such a huge potential value because you're getting the market returns but it's also lower risk than if you would go for NVIDIA stocks or Tesla stocks or whatever one specific stock that you're making a huge bet on. In investing we call that alpha, there's alpha over here and alpha comes with risk but it's not just investing. A corporate job typically has lower risk on this side of the picture than becoming an entrepreneur. It's lower risk but it's also lower potential value. You don't really have the chance of an exit if you stay in a safe corporate job. If you join a startup, not as a founder but as an early employee, maybe it's somewhere here in the middle. If you start something new, you have huge potential, but also a lot of these startups fail. So you'd risk. If you're building a new product, you could go safe and build something that's not really new, but then the value won't be there. If you go for something unique value proposition, it often comes with risk. That risk with that value is the alpha in product development as well and it's true for buying features. It would be nice to win the lottery without buying many tickets, but that doesn't work. There are situations where you can find tons of value without a lot of risk. Maybe if you're an established product and your customers are all telling you, this is what we need. This is the stuff that would really be valuable for us. Go build it. Don't spend too much time trying to think through it. For sure, don't go into this space. Don't go do something that doesn't have a lot of potential value, but carries a lot of risk. ## What is really happening in the system So avoid this. But also be careful of being risk-averse and putting all of your choices over here. Because while there wouldn't be much risk, there would also be fewer returns. A lot of organizations are actually getting stuck in here, whether it's in their product development, as well as how they run their business. Because the incentive, the way the organization runs, it's becoming politically dangerous to own, run something that has a lot of potential value because of the risk that it entails. So what could we do? One interesting thing with these risky things is that unlike the stock exchange and unlike many things in life, we have ways to do risk some of our choices. So if you flip this for a second and look at what do we do when we have something that has a lot of potential value and a lot of risk. If you look at this lifetime, we start with a lot of risk. If we believe that that risk is worthwhile because there's a lot of potential value, then over time what we could do is try to learn and de-risk as efficiently as possible. And you could see multiple ways around this. The classical way to execute on initiatives or build products is to just go do it, do it, and eventually learn whether it was risky or not, whether it was worthwhile doing. The smarter way to do it would be to de-risk along the way. How do you hedge? How do you de-risk along the way? You learn on the risk. So, it could look something like this over time or ideally you find a way to do something like this. How do you do this? You look at what was the risk in that new idea? What were the risks in this business initiative or in this product and you try to close feedback loops on these risks as quickly as possible? So essentially what you're doing is you can think of it this way. Let's say for example you were designing, you had an idea for a new razor, a new grooming razor for men and ignore my bed, you know, sketching abilities. But in this new razor, there is this new thing, a couple of new things. Let's say one is that it has a magnetic base so that we could actually put this on our bathroom counter and the other thing is beyond just shaving, this actually has some benefits but there's a question about that benefit. Is it valuable? Is it beneficial? The questions that we have around it is will the consumers notice it? Will they like it? Will it be delightful? Will they pay for it? ## The practical shift All of these are good questions. So once we recognize these questions, we can go back to this and build a plan that will learn. Learn on these questions as quickly as possible. So instead of spending too much time building the thing, trying to market it, figuring out the packaging, all of these questions. We very quickly want to learn on, first of all, notice, let's say, and then like, pay. Now, of course, we cannot do this immediately at the same time. So what we actually do is we build a plan that over time takes a step, the minimum step that will answer this question. So maybe we create a prototype and give it to some consumers and ask them, have you noticed anything different between two versions? One that looked like this without the orange and this one, any difference? If nobody notices anything, then we realize that this was a real risk. of proceeding in the same direction will need to go back to the drawing board literally or our cat come software and design something that is more noticeable. So maybe instead of doing something that's only slightly textured, maybe we add a bit more texture to the thing. And at that point, maybe we do another run and you know, consumers do notice, but then we ask the question, do you like this? The hope is to get, I don't know, 5 out of 10 consumers to like the feeling, the sensation when they use this over their face. But again, maybe the result is, now that we notice it, we don't really like it. So maybe we need to change the direction. So for each one of these decisions, for each one of these assumptions that we're making, we often call those lip of There are two options of what might happen. One option is that we de-risk. We made the right choice. People do like it. At this point we reduced some risk. The other choice is that we learn, we didn't like it. We need to pivot. We need to change direction. But at least we minimize the amount of investment over time on this direction. Sometimes the answer might be, you know what? Involidating this assumption invalidates the whole thing. But that's also successful. Because so far we've only invested the limited amount of money and time and resources on this idea. So if you go back to the sketch over here, what have we done here? ## What leaders should pay attention to We've chosen a high potential idea and we've figured out what are our biggest leap of faith assumptions. We've built a backlog, a set of ideas and we've worked through them one by one. every time something didn't work, we had to add some work to do this. And we've navigated the path towards delivering this value while minimizing the risk. So essentially what we've done here is we've managed to keep the potential value here, but pulling this initiative back here. And if If you're looking at why are we investing in things like agile, we're doing it to execute in a risk-driven way. Essentially agile is risk-driven development. Whether we're talking about new product development, new features, strategic business initiatives, operating model, operating model, career, all of these, in all of these fields, there's potential alpha that comes with risk. Edge will is essentially a way to potentially get the alpha while minimizing the risk. You cannot eliminate it, but you're surfing that risk. You're efficiently tackling the risk. So what's the alpha you're tackling with agility? ## Source boundary These are the published show notes from the podcast feed. They are a starting point for discussion, not a verbatim record of the conversation. The transcript is machine-generated and may contain errors or unlabeled speakers. Check the audio before quoting anyone.