Strategy frameworks
Peel the onion: how investors and owners should look at risk
A venture capital framework for finding the one risk that matters, and what to do about it, from both sides of the table.
By Dan Lee · November 2026At first look, every investment carries every risk. The market might be smaller than it looks. The product might not hold up. The team might not be able to run it. The useful work is finding out which of those risks is real.
Andy Rachleff, a co-founder of Benchmark, taught venture investors to think about this as an onion. Marc Andreessen made the idea widely known, first on his blog in 2007 and later in a 2014 lecture where he credited Rachleff. In his words, risk "comes in layers that get peeled away — reduced — one by one." The idea was built for startups. It works at least as well for established companies, from both sides of the table.
The layers
Andreessen listed the layers a venture investor worries about. Each one translates to a company that has been in business for years:
| Layer | The startup question, in short | The question for an established company |
|---|---|---|
| Team | Is this the right founding team? | Can this leadership team run the business, and the plan, without the owner? |
| Market | Will anyone want it and pay for it? | Is demand real and growing for the products and customers this company actually serves? |
| Competition | Is it different enough from rivals and incumbents? | Do customers have a reason to stay that a competitor cannot copy? |
| Timing | Too early, or too late? | Is this the right point in the market or program cycle to make this move? |
| Financing | How much more money until it is profitable? | How much capital will the plan really need, when, and how sure are we? |
| Marketing | Do the economics of winning a customer work? | Can the company win new customers at a cost that works, through channels it controls? |
| Technology | Can it be built at all? | Does the plan depend on a process or capability that is not proven yet? |
| Product | Can this team build it? | Can this plant make it at the cost and quality the customer requires? |
| Hiring | Who has to be hired to execute? | Which roles does the plan need that the company does not have today? |
| Location | Can it find talent where it is? | Can it hire and keep those people where the plant is? |
Laid out in full, the list looks frightening. In practice most layers turn out thin. One or two carry the real risk.
The investor's lens: find the risk that matters, then decide what to do with it
For a private equity group or a strategic buyer, the job is to peel the layers until the real risk shows. Each layer has its own tools. Customer interviews and revenue by account in the data room peel customer concentration and product fit. Secondary research and expert interviews peel the market and competition. Management interviews and a site visit peel the team and operations.
Finding the risk is half the job. The other half is deciding what to do about it. Customer concentration is a good example. A large customer on a long program, with share still to win, is a risk the new owner can work on: add a sales leader, broaden the account base, set a timeline for diversifying over the hold period. The same concentration on a program that ends in two years is a valuation problem, or a structure problem. It belongs in the price, in an earn-out, or in the decision to walk.
So the order is: establish the current situation, match it against your own appetite for risk, and for every risk you can fix, write down the plan and the timeline. Those plans become the first page of the value creation plan.
The owner's lens: peel your own onion first
Owners can use the same onion from the inside, at two moments.
Before a big move. A new end market, a second plant or an acquisition is an onion too. Rank the layers by how much damage each could do and how cheaply each can be tested. Spend the first dollars only on the riskiest layer: a pilot order, a trial run with a contract manufacturer, a qualified first customer. Fund the next stage when that layer is gone. (We apply the same idea to forecasting new markets in How to forecast a market that doesn't exist yet.) It also gives you a clear story for the bank, the board or the family about why the next tranche is earned.
Before a sale or a capital raise. A buyer will peel your onion in diligence. If they find the risk first, you pay for it in price, or in a smaller payment at close and a larger earn-out. If you find it first, you can fix it or explain it on your own terms.
The layer established companies forget
The usual pushback is "this is a startup framework, and we've been in business forty years." Forty years peels some layers. A long record usually settles the market and product questions. It does nothing for the team layer.
In owner-led companies, team is the layer most often left unpeeled. The owner is in the day-to-day operations, holds the key customer relationships, and makes the calls on pricing and quality. No team has been built to run the business after the owner steps back. A buyer sees that in the first round of management interviews, and it changes how they structure the deal.
What to do on Monday
Write down the layers for your next big decision, whether that is an investment, an acquisition or an eventual sale. Mark the one or two that would hurt most if you are wrong. Then name the cheapest way to test each one. That is where the first dollar, and the first month, should go.
Free download · Checklist · PDFCommercial due diligence checklist
Seven questions to answer before you sign on a middle-market company, with the evidence that settles each one and the red flags that should change the price.
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