Chapter 3: Let’s Talk About Risk
Assessing Your Relationship with Uncertainty
risk tolerance, uncertainty, risk assessment, entrepreneurial risk, comfort zone
Risk. Let’s talk about it — because if you’re going to be an entrepreneur, you’re going to be living with it whether you like it or not.
A few years ago, a colleague of mine — Professor Asgari — asked me to add a section on risk to this presentation. How do you deal with it? How do you think about it? The question caught me off guard, honestly. Not because it’s a strange thing to ask, but because I realized I don’t consciously think about it as risk. I don’t frame my mornings around the word. I’m just always thinking about it — the way you might think about the weather. You don’t narrate it to yourself constantly, but it’s always informing what you wear and where you go.
So let me try to make explicit what usually runs in the background.
Nothing Is Without Risk
The first thing I’d want you to internalize is this: nothing is without risk. Nothing. The decision to start a company carries risk. So does the decision not to. Taking a job at a big, stable corporation carries risk — what happens when that corporation decides you’re expendable? Coming to Michigan Tech carries risk. I think about this sometimes. Houghton is not easy to get to, or out of. It snows for what feels like the entire academic year. It’s a small town, far from everything. When you showed up as a freshman — how many of you had never been here before you arrived? Every hand that goes up represents someone who made a decision with incomplete information. And it turned out fine. That’s usually how it goes.
The question, then, is never whether there is risk. The question is: how manageable is it? That’s where my head goes immediately. Not “is this risky?” but “can I manage this risk, and how?”
The Rumsfeld Framework
I didn’t invent this — I want to be clear about that. It comes from Donald Rumsfeld, who was Secretary of Defense in the Bush administration. He made headlines for how he talked about what the military did and didn’t know going into conflict. It was controversial in context, but stripped of all that, the underlying framework is genuinely useful for anyone running a business.
Rumsfeld broke uncertainty into three buckets:
Known knowns. These are risks you know you’re going to face, and you know what they are. Do I have enough capital to make it to the next milestone? Is the product actually ready for market? Will enough customers care? You know these questions exist. You can name them. And because you can name them, you can manage them. Known knowns should not sink your company — they’re the ones you have to deal with, full stop.
Known unknowns. These are gaps in your knowledge that you’re aware of. You know something could go sideways in a particular area, but you don’t know exactly what form it will take or when. A competitor might emerge. Regulations in your industry might shift. A key supplier might become unreliable. You can see the shape of the risk, even if you can’t see the specifics. These belong in your business plan — not hidden in the back pages, but front and center as part of your risk assessment. You might not have answers yet, but you need the questions.
Unknown unknowns. This is the hard one. These are the things that are going to happen that you can’t see coming at all — not because you’re careless, but because they’re genuinely invisible until they arrive. Every business has them. They never show up at a convenient time. They have a way of materializing at the absolute worst moment, when you’re already stretched, when the team is tired, when the runway is short. You cannot plan for them specifically, but you can cultivate the mindset and the team cohesion to absorb them when they hit.
The goal — and this is important — is to move everything as far left as you can. You want to convert unknown unknowns into known unknowns, and known unknowns into known knowns. The way you do that is by thinking hard and early about your risks. Research your market. Stress-test your assumptions. Build scenarios. You will never eliminate the third bucket, but you can shrink it through preparation and vigilance.
I thought about these three categories every single day when I was running a company. Every day. And I’ll tell you — I’m mostly retired now, and I still run through some version of this for whatever I’m working on. It becomes second nature.
When It Hits, Deal With It
Here’s the other thing about risk, and about the unknown unknowns especially: they are going to happen. Accept that now. The question is not whether something unexpected will blindside you — it will. The question is how you respond when it does.
My advice: allow yourself about thirty seconds to freak out. Seriously. Whatever the gut reaction is, feel it — then set it aside and get to work. If you have a team around you, bring them together. Even a small team. Lay out the problem clearly, without ego or defensiveness, and think it through collectively. You will see angles you cannot see alone.
Which brings me to something I feel strongly about.
Get Out of Your Own Head
One of the smartest things I ever did — and one of the things I’d push every entrepreneur to do — was surround myself with people who would argue with me.
I was always the one pushing harder. Pushing faster, pushing further. I needed people who would slow me down and say, “Wait — why are we doing that?” or “Have you thought about what happens if this doesn’t work the way you think it will?” Those conversations are uncomfortable and they are invaluable.
You can talk yourself into almost anything if you’re only talking to yourself. Confirmation bias is real. When you’re in the middle of building something, the optimism that keeps you going can also keep you from seeing clearly. A good mentor — even one, even someone you meet with twice a year — can give you that outside perspective that recalibrates your judgment.
Data helps too. We have access to more of it now than I ever did. But data only goes so far. There’s a non-quantitative dimension to risk — call it judgment, intuition, experience, wisdom — and you build that by talking to people who’ve been through things you haven’t. Find them. Buy them coffee. Listen more than you talk.
Know Where You Stand
Now here’s the more personal part. Before you can manage risk well, you need to know your own relationship to it. Where do you sit on the spectrum?
I’ll tell you where I sit: I’m comfortable with a fair amount of risk, as long as I’ve done my homework. I don’t need certainty. I need to feel like I’ve identified the major risks, I understand them, and I have at least the beginning of a plan for dealing with them. That’s enough for me to move forward.
But that’s me. Maybe you’re more conservative. Maybe you need more certainty before you act. Maybe you need to talk to more people, run more numbers, sleep on it longer. That’s not a character flaw — it’s just who you are. The important thing is to know it about yourself, because it will show up constantly in the decisions you make as an entrepreneur.
There’s no right answer here. There’s no point on the comfort-with-risk spectrum that makes you a better or worse founder. There’s just your answer — and the more honestly you can name it, the better equipped you’ll be to work with it.
If you’re at Michigan Tech, I’d wager you’re already somewhere in the upper range. You chose a school that requires a certain tolerance for discomfort, geographic isolation, and weather that would make a reasonable person reconsider. You did it anyway. That tells you something about yourself.
Risk is unavoidable in entrepreneurship. The goal isn’t to eliminate it — that’s not possible. The goal is to understand it, categorize it, talk about it honestly with people you trust, and build the kind of mental toughness that lets you respond clearly when something unexpected lands on your desk.
That combination — self-knowledge, preparation, and the ability to stay clear-headed under pressure — is as close as anything gets to a risk management strategy that actually works.
Risk thinking doesn’t stay abstract for long. The first place it becomes concrete is in the business plan — which is where we’re headed next.