Note: This is part 2 of a 4-part series defining entrepreneurship from author and serial entrepreneur, Jim Beach. We’re honored to have him on our blog. Make sure to check out his first book, “School for Startups.”
Read Part 1: Is Creativity Part of Entrepreneurship?
Read part 3: Is Passion Part of Entrepreneurship?
Read part 4: Why Entrepreneurship is About Execution
Part 2 – Is Risk Part of Entrepreneurship?
Who's more at risk here? The goat, or the monkey?
Certainly, an entrepreneur is assumed to be a risk-taker, and the more risky the endeavor, the cooler the media finds it. We love the “take the job and shove it” story – especially when it crescendos to the triumphant, phoenix-like rebirth at the end, our renegade entrepreneur riding off into the sunset … cue the Rocky theme music. The riskier the startup, the sexier the story. And we all love a good story.
But just the same as creativity, many fail to start a business because they have the wrong definition of entrepreneurship.
The perception is that entrepreneurship involves large risk, and “Since I have two kids about to go college,” they think, “there is no way I could start a business.” The fear of risk prevents action. In fact, many would-be entrepreneurs do not start businesses because they think it is too risky, without actually having assessed the level of risk associated with a particular venture. Moreover, they often fail to consider how risky their own status quo truly is.
Why a Job is Risky
Image via the 'Journey of an Entrepreneur' blog.
For example, a Fortune 500 mid-level manager making $175,000 a year in Charlotte feels very safe, as her industry is doing OK. She has no idea that headquarters back in Cleveland is considering selling her whole operation. It is actually very risky for her to buy a new car.
She warns her brother, the landscaper, that his construction-reliant career is dangerous. He has only 20 clients now, but it has bottomed out, and he has scaled back to survive with only 14 clients. The landscaper would have to lose 6 clients to be in the same danger that the mid-level manager faces because the landscaper has 20 revenue streams, while the manager has one. When you look at it that way, the landscaper’s kids have a better chance of going to college.
Why Entrepreneurship Has Less Risk
Yes, risk can be a part of the startup -– there is no guarantee that your startup will be successful –- but the true entrepreneur reduces risk to the point that starting something is a no-brainer. Risk does not necessarily have to exist as a part of the equation.
Remember Randy from Part 1? How much risk did he take by starting his law services outsourcing firm? None. By securing his first client before he left his old job, the risk was non-existent.
How to Reduce Risk
There are many ways to reduce risk. The most famous is to use other people’s money. But this also reduces reward. Another way is to set more realistic goals about what you can afford with your own money.
Spokane's Mike Threlfall, "Mr. Safety." He's a man who knows how to reduce risk. Go ahead, ask him.
The Manhattan Cafe in Athens, Georgia, has made a profit since day one, which was almost 10 years ago, because Joey reduced his risk by spending what he could afford and opening a really cheap bar.
Even now that he owns 10 other revenue streams around town (a parking lot, an ATM machine, a nice bar, a restaurant, a flea market, etc.) and could afford to fix up the Manhattan, it remains a dump. Part of its charm, perhaps. Profitable, but not so nice.
If your fear of risk is preventing you from your goals, focus on reducing risk or look for a way to offset risk. While some enjoy risk, most of us consider it something to avoid at all costs. The bottom line: True entrepreneurs reduce risk to the point that action becomes quite logical.
About Jim Beach
Jim Beach
He has spoken on entrepreneurship in colleges across the country, and has presented to several Fortune 500 companies. Jim founded TheEntrepreneurSchool.com, and InternationalEntrepreneurship.com to help other entrepreneurs worldwide. Follow him on Twitter at @entrepreneurjim .
I have been self employed most of my life and have never made as much as the Mgr. in this article. 2+ years ago I lost a well paid position as sales mgr. and am back to self employment. Not rich but wealthy in survival instincts. I am about to embark on a completely new venture at 62 and am very optimistic that it will be the most successful of my life.
Chuck, thanks for stopping by. Good luck in your new venture. Tell us about it when it gets off the ground.
I am working on my third company and first web business. The first two failed but I have learned so much along the way and feel ready to turn the corner.
Jason, here’s to three times the charm!
People forget that it is OK to fail, we learn from failure more than we learn from success. So fail faster to get to success.
The entrepreneur conducts a delicate balancing act: How to mitigate risk while taking risk…at every turn. This is reflected in the budget and the business plan where the assumptions to the pro forma are delineated and defended. As the business unfolds and rolls out, some of these assumptions shift, and some change completely.