The problem with “risk / mitigation” sections in business plans

I see a lot of business plans and our team writes a lot of strategy memos.

I’ve always been a little frustrated with “risk / mitigation” sections of these documents, including some I’ve written myself.

“Risk / mitigation” sections feel like an exercise in confirmation bias. They almost always affirm the correctness of the business plan’s thesis.

The logic path of a risk / mitigation section is: “here’s our idea, there are some risks, but here’s why we’re going to do our idea anyway.

This is a modestly useful exercise. It’s worth understanding the risks of a plan and preparing for them. But this type of thinking does not force you to analyze the “crux” of your plan – i.e, what are the major trade-offs you’re making, and under what future conditions could you be proven wrong.

I prefer to see both of these lines of thinking in a business plan: first, a clear identification of the trade-offs in any major decision, and, second, a statement of what might make you change your mind about your plan’s thesis.

Any very hard decision will include difficult trade-offs. And any hard decision might also result in you being wrong. Identifying these ahead of time will help you be mentally prepared to make difficult shifts down the road.

It will also decrease the probability that you drink your own kool aid.  There is a humbling effect in writing down potential future conditions that will indicate that you are near failing or have already failed.

I hope that one day every business plan includes “trade-off” and “we will know we were wrong if” sections.

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