Four counterproductive myths about entrepreneurship, part IV

February 25, 2011 by Joshua
in Blog, Entrepreneurship, Tips

[This post is part of a series on four main myths that discourage entrepreneurship and how to overcome them. If you don’t see a Table of Contents to the left, click here to view the series, where you’ll get more value than reading just this post.]

Myth 4: Starting a venture is riskier than working at an established firm

Risk means different things to different people. Risk that matters to one person many mean nothing to another.

People tend to think young ventures are risky overall because their stock value (or however the venture is valued) is volatile, which leads investors to call them risky. But the price of a stock is only one measure of risk, and that risk may be only partly relevant to a founder or employee, however important it is the investor. It may not be relevant at all.

Your venture’s volatility and your personal well-being are orthogonal. They are only correlated if you make them that way. Business success or failure is not personal success or failure. In fact, business failure often brings about personal success.

More relevant to a founder or employee will likely be his or her paycheck and long-term value of shares. Established firms may lay you off without warning as easily as a young venture can go under. A rule of thumb is that ventures want to hire; established firms want to fire. As an entrepreneur, you will likely have more warning about the venture’s state than an employee at an established firm will have over layoffs. Moreover, as an entrepreneur, you may have more control over your environment.

Personally, knowing and having control feels less risky to me than not knowing and having less control, but that’s personal taste.

In deciding to start a venture, the most important risk is to you personally, not the value of the business. Short term personal concerns are do you enjoy your work, do you take pride in it; will you be able to pay your bills, tell your friends what you do, sleep at night, and such. In the longer term, do you enjoy what you’ve built, if the business fails will you still feel emotional reward for the work you did? You can manage all of these questions no matter how volatile your venture. You can say yes to them all even if your business goes bankrupt.

You can always trade your expected reward for more security. That is, if you expect your business to be worth a bundle in a few years but you’re worried about paying your rent in six months, you can sell shares for cash to decrease your worry. (If you don’t believe your venture is worth enough, you have a bigger problem than risk; you’re pursuing too low value a dream.)

For people who love entrepreneurship there is a risk perhaps beyond all others: if you don’t try it, you’ll never know what you’re missing. Do you want to live your life not doing what you want to do?

People who start companies may fail, but they never look back at their lives and wonder what if. Only you know how great or little your passion, how great or little your potential regret, how much or little you value the benefits of established companies versus those of your own.

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1 response to “Four counterproductive myths about entrepreneurship, part IV

  1. Pingback: Joshua Spodek » Four counterproductive myths about entrepreneurship, part III

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