Four productive beliefs about entrepreneurship, part IV

February 28, 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.]

Let’s replace the fourth myth with something productive.

Productive belief 4: the risk to the entrepreneur of starting a venture can be as small as he or she wants

In competitive markets, risk and reward go together. Entrepreneurship may engender risks established companies don’t, but established companies engender risks young ventures don’t. A venture being new doesn’t change the relationship between risk and reward. That relationship is about the magnitudes of risk and reward, not types.

The consequence is that if you don’t like the amount of risk you’re taking as an entrepreneur, you can always decrease it by re-balancing your potential reward. Balancing risk and reward is hardly unique to entrepreneurship, but being an entrepreneur gives you that control about how your project affects the rest of your life.

For a few situations, this strategy doesn’t work. For one example, if your goal in entrepreneurship is to strike it rich — American self-made millionaires are disproportionately entrepreneurs — without taking on any risk, I’m afraid you may be disillusioned. It happens, but rarely. For another example, if you pursue a plan with little potential reward, you won’t have any leeway to decrease your risk.

For most other goals of the entrepreneur, you can choose the amount of a given risk you want by turning the dial on a corresponding reward. Because different strategies to balance risk and reward work for different motivations, to do it effectively, you have to know your motivations.

If your goal is to run your own company and be your own boss maintaining control may be more important. If your goal is to bring to the world this amazing idea you have, you may be willing to sacrifice control in favor of growth and recognition. If your goal is to make your own hours and have a comfortable lifestyle, you’ll factor things differently.

The point is that entrepreneurship allows you that flexibility. The one thing I’m not sure you can sacrifice is that you have to take responsibility to start things on your own. But that’s taken care of once you bring your reasonable idea to a business model others believe in enough to invest their resources (time, money, energy, attention, etc) and it has enough potential value to support you, steps that cost no cash and tend to be fun. Then you can manage risks how you like.

If you are concerned about running out of money, you can sell shares to bring in more.

If are concerned about time, you can involve others. You can hire people or you can partner with other people or companies.

If your concern is control, you can do the opposite of the above.

I don’t know what risks concern you personally. Whatever they are, once you’ve brought your idea to business readiness, if you are aware of the risks that concern you — and attaining awareness can be a big deal — you can manage them against rewards.

Entrepreneurship is not more risky overall. It may be in some areas, but it’s less so in others. When you know your interests, you can manage the rewards and risks to meet them.

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