The Duke Entrepreneurship Manual

Risk/Reward Profile

Creating a risk/reward profile is a way of evaluating your opportunity from a financial point of view. The questions below will help you to clarify the nature of the investment for those who may consider supplying the capital required.
  1. Risk: What are the main sources of risk for this new venture? Can you quantify these risks in any way?
  • Customer / market risk
  • Technology risk
  • Competition risk
  • Regulatory risk
  • Broad economic or societal risk
  1. Managing Risk: Which of these risks can be controlled by you?  Can be mitigated by you?  Which of these are totally outside your control?  Can your business model be adjusted to account for different risks?
  2. Scenarios: Describe 3 – 4 scenarios of possible outcomes for your venture. These should be articulated in terms of core assumptions that underlie each scenario.
  3. Financial projections: Describe the projected financial performance of your venture in each of these scenarios.  Work from a bottom-up approach (how many units can I sell…) as well as a top-down approach (what do my numbers look like if I capture x% of the market?  How reasonable is that?). Although projections at this stage will be rough, you will still need to strive to make them internally consistent.
  4. Likelihood: What is the likelihood of the various scenarios and what is the basis for these judgments?