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.”
Part 2 – Is Risk Part of Entrepreneurship?Back to our 100 street interviewees. The same 99 that insist that creativity is essential to entrepreneurship likely would also suggest that risk is a vital component.
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
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.Joey Tatum wanted to own a bar. He could not afford to spend millions on a build out, so he took what he could afford, $5,000, and started a bar with that.
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
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 .