3. Business Risk in Product Development

Introduction

In product development, business risk refers to the potential issues that could hinder a product's success from a business perspective. It involves both external and internal risks, such as failing to generate revenue, legal compliance issues, or misalignment with the company’s strategy and goals. While value risk is about whether users will find value in the product, business risk addresses whether the product can be financially viable and aligned with the overall business operations.

This document outlines the concept of business risk, key considerations for mitigating it, and practical examples from companies like Ifood and Gympass.

What Is Business Risk?

Business risk is concerned with ensuring that the product:

  1. Generates sufficient revenue or financial return.
  2. Aligns with the company’s strategic goals and operational capabilities.
  3. Complies with legal, regulatory, and market constraints that can impact the product’s success.
  4. Does not create inefficiencies or unnecessary operational overhead that could negatively affect the business.

Business risk also includes potential internal issues, such as process inefficiencies, risks of miscommunication between departments, and operational bottlenecks. Identifying and addressing these risks is crucial to ensuring that the product contributes positively to the business.

Key Questions to Address Business Risk

To effectively mitigate business risk, teams must ask the following questions:

1. Is the Product Aligned with the Company’s Strategic Goals?

The product must align with the company’s long-term vision and goals. If the product diverges from the company's strategy, it may not receive adequate internal support or investment, leading to failure despite potential user value.

Example Questions:

2. Can the Product Generate Revenue or Reduce Costs?

It’s critical to determine whether the product will have a financial impact. This could be direct revenue from sales or subscriptions, or indirect benefits like cost savings, increased operational efficiency, or improved customer retention.

Example Questions:

Business risk also includes ensuring that the product complies with regulations, legal standards, and industry practices. Non-compliance can result in fines, legal challenges, or reputational damage.

Example Questions:

4. Do We Have the Resources and Operational Capacity to Support This Product?

Even if a product has clear value, it can become a business risk if it overburdens internal teams or creates operational inefficiencies. Assessing whether the company has the necessary resources—such as staffing, tools, and infrastructure—is essential.

Example Questions:

Mitigating Business Risk: Strategies and Examples

Example 1: Ifood’s Restaurant Onboarding Process

At Ifood, the manual onboarding process for restaurants involved multiple teams and was prone to inefficiencies. The manual nature of this process created internal business risks, including operational bottlenecks, high costs, and potential errors in regulatory compliance.

Strategy: The team mapped out the entire onboarding process, identifying inefficiencies such as duplicate data validation steps. By understanding the process flow, they were able to introduce automation to reduce manual work while maintaining regulatory compliance (such as correctly handling different business classifications like CNAEs).

By automating and streamlining this process, Ifood mitigated business risk by:

Example 2: Gympass and IPO Strategy

As Gympass prepared for an Initial Public Offering (IPO), the company needed to evaluate whether its focus on product usage (users attending gyms) was the right metric to prioritize for potential investors. While product usage was crucial earlier, Gympass needed to shift its focus to metrics that would drive better financial valuation, such as revenue growth and subscriber retention.

Strategy: The team conducted a comprehensive analysis, benchmarking other companies like Peloton and Spotify that had gone through IPOs. They identified key business metrics—such as subscriber growth, EBITDA, and churn—that would be more impactful for investor valuation. By shifting focus to subscriber growth and aligning with investor expectations, Gympass was able to better position itself for a successful IPO.

The analysis helped Gympass:

Tools and Methods to Mitigate Business Risk

  1. Process Mapping: Mapping out internal processes allows teams to identify inefficiencies, redundancies, and potential legal risks. This method is essential for understanding how different teams interact with the product and what can be optimized to reduce risk.

  2. Benchmarking: Analyzing other companies in similar industries or those that have gone through similar growth phases (e.g., IPO) can provide valuable insights into the right business metrics to focus on and avoid common pitfalls.

  3. Opportunities Assessment: This method involves evaluating different potential business opportunities based on their financial impact. By comparing improvements in retention, adoption, and engagement, teams can prioritize efforts that provide the highest return on investment.

  4. Stakeholder Alignment: Bringing together relevant teams—such as legal, compliance, finance, and marketing—ensures that all potential business risks are considered. This approach helps avoid blind spots and ensures the product launch is sustainable from all angles.

Conclusion

Mitigating business risk is critical to ensuring that a product not only solves user problems but also contributes to the company’s financial and strategic goals. By aligning the product with the company’s objectives, managing internal processes, ensuring compliance, and focusing on financial sustainability, teams can significantly reduce the risk of product failure from a business perspective.

Effective risk mitigation strategies include process mapping, benchmarking against successful companies, and engaging stakeholders across the organization. By continuously assessing and addressing business risks, teams can create products that deliver value both to users and the business, ensuring long-term success.