ABSTRACT
PLACING BIG BETS might be a test of manhood when risking your own money, but when you are risking the fortunes of others, it becomes a recipe for disaster. For new, technology-based ventures, two characteristics can lead corporate innovators, entrepreneurs, and investors into accepting such large-scale risks. The first is a characteristic of the business environment surrounding the project: the external conditions having greatest influence over the success of the venture are highly volatile and defy any reasonable understanding, let alone forecast. This is the domain of “ignorance” discussed in the Introduction to Part II. The second derives from the nature of the venture itself. Consider an important subset of technology ventures—for example, any kind of advanced energy project like an offshore oil drilling platform or a coal-fired power plant; a private spacecraft like that pioneered by Virgin Galactic; an electric powertrain automobile; and so forth. The functional characteristics of many such ventures include:
Immediacy. A prompt decision must be made to pursue an opportunity or to pass it up. The conditions for success now appear favorable, but once the opportunity has passed, there can be no guarantee that these favorable conditions will return.
Capital Risk. The venture requires a large upfront investment, most of which must be committed before the value from the project can be achieved.
Duration of Exposure. Radical changes in the business environment can affect the risk exposure of this investment for a protracted period, perhaps as much as 30 years. Such disruptive changes can include: advances in rival technologies; regulatory and legislated requirements; resource abundance or scarcity; currency exchange rates; and the like.
