Let’s say you’re an employer needing to fill a position in your organization. You have two qualified candidates. Their major difference: One is an ex-felon with a years-long prison record. Which do you hire? We can think of few business scenarios likelier to scare employers and send investors running than working with ex-convicts. Yet that’s precisely what Defy Ventures does every day.

In fact, doing so lies at the heart of their business model.

It’s right there on their homepage: “Defy Ventures is an entrepreneurship, employment, and character development training program for currently and formerly incarcerated men, women, and youth.” Former inmates, who have paid their debt to society, are among the least employed people in the U.S. and their children the most likely to become offenders themselves. That’s a dynamic that founder and CEO Catherine Hoke set out to change: to build a startup based on second chances. A repeat entrepreneur with a background in venture capital and private equity, Hoke coupled a bold vision with lean-inspired innovation and a set of feisty values, to create a successful, effective answer to recidivism and generational failure, among the nation’s most unyielding social problems.

Scrappiness is a core value at Defy Ventures. Hoke, her team, and her “entrepreneurs in training” take risk head on and in large doses. That in itself is innovative. Could it work for other, more traditional organizations? At tekMountain, we talk a lot about core values, so we have to ask,

How do a company’s core values influence risk taking?

A hospital’s core values may include community service, social responsibility, empathy — outstanding social values that don’t always interpenetrate innovation. If a hospital values diversity and inclusion, recognizing that every person is unique, how could that complicate their understanding of the vast array of their customers and employees? If a healthcare system cites teamwork as a core value (for example, here, here, and here), how might that affect their allocation of resources when tallied against competing innovation priorities?

Naturally the type of risk exposure you have depends on your market and type of business. Startups, a.k.a. “risk bundles,” face unique risks.

Steve Blank says that vertical startups face two types of risk; invention risk or customer/market risk. Markets with invention risk are those where it’s questionable whether the technology can ever be made to work. Markets with customer/market risk are those where the unknown is whether customers will adopt the product.

The Teague Hopkins Group throws in a third: ego risk, “the chance that an entrepreneur can’t get out of her or his own way, pay attention to the data, overcome cognitive biases, and avoid falling prey to a reality distortion field.”

For larger, more established businesses, commentators and consultants often note more varied risks, such as these cited by Cayenne Consulting:

  • Market Risks
  • Competitive Risks
  • Technology & Operational Risks
  • Financial Risks
  • People Risks
  • Legal & Regulatory Risks
  • Systemic Risks

Many people think that the central tenet of the lean-startup method is to “fail early and often,” to “fail fast.” Eric Ries, author of The Lean Startup, hates the idea of failing fast. Early this year he told Entrepreneur magazine, “It’s like I’m trying to run a sprint, and you’re like, ‘OK, breathe fast.’ The breathing is not the purpose,” he said,”the sprint is the purpose.”

Thinking that lean startups “embrace” failure can be misleading. Successful startups don’t invite failure, they tolerate it when it happens, learn from it, and get past it quickly.

Yet “the reality in many organizations today,” according to the Harvard Business Review, “is that despite the public emphasis on innovation, the underlying culture may be strongly risk averse.”

We may look to companies like Amazon as examples of cultures of innovation and risk tolerance. As pointed out in Forbes, “Jeff Bezos encourages an ‘explorer mentality’ rather than a ‘conqueror mentality’ in his teams…. Tesla keeps teams small, so they maintain an entrepreneurial mindset with a higher tolerance toward risk than older firms in the automotive industry that rely on larger teams… At Google, teams have timelines of three to four months to prove a concept’s viability.”

As Steve Blank wrote in 2013, the lean approach actually makes startups less risky. That’s the science of it all, really. Lean method strives to minimize risk. That’s just prudent.

Steve Culp and his colleagues at Accenture Finance and Risk Services argue that, while startups are widely seen as natural sites for innovation, larger organizations with mature risk-management functions are well positioned to innovate. “Risk management can help foster a [larger] company’s innovation agenda,” Culp says, “by revealing blind spots and areas of underinvestment that threaten the upside of a company’s future.”

Banks and accounting firms are not typically regarded as risk takers, so it’s refreshing to see that many of them, too, understand that, yes, innovation can be risky, but failing to innovate can be riskier. Some see the special potential of a lean approach, particularly with regard to rapid iteration and avoiding vanity metrics.

The point is that risk aversion needn’t be the enemy of innovation. But helping the two “play nice” together can take some guidance. That’s where tekMountain comes in. We can help you reduce your startup risk by

  • connecting you with advisers who are domain experts in your market;
  • helping you to understand what’s unique about your market and its type(s) of risk;
  • identifying investors who understand your market.

This blog was produced by the tekMountain Team of Sean AhlumAmanda SipesZach Cioffi and Beth Roddy with lead writer Bill DiNome.

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