Saturday Startup Tip #2: Entrepreneurship Is a Risky Business

Saturday February 18, 2006

You'll hear people argue that job security isn't what it used to be -- that there's no loyalty of companies to employees any more. And they'll try to tell you that being your own boss is actually more secure than holding down a traditional job.

Much as we all might like to believe that, it's simply not true. Make no mistake, entrepreneurship is a risky business. Are you ready for it?

Are you ready to exhaust your life's savings, only to have nothing to show for it after a couple of years? Are you ready to not know where next month's rent is coming from, because there's no steady paycheck being direct-deposited on the last day of the month? Are you prepared to drive the same beat-up old car for another year because your money needs to be reinvested in your business? What about bankruptcy or foreclosure if you can't make your payments?

Even if you're prepared for all of those things, is your spouse? Are your kids? Are your parents, in case you need to move back in with them?

That may not paint a very rosy picture of entrepreneurship, but we have to remember that no matter how great your idea is, no matter how good your planning is, no matter what a terrific team you've put together, entrepreneurship is still gambling. And the #1 rule of gambling is, "Don't gamble what you're not willing to lose."

Of course, there are all kinds of things you can do to reduce your risk:

Different types of businesses have different degrees of risk associated with them. For example, setting up as a franchisee of a major franchisor is one of the least risky forms of business ownership, because the franchisor has a proven formula and provides so much support. The requirements also help, because among other things, they make sure you have sufficient startup capital.

Starting a solo service business, e.g., consultant, personal trainer, virtual assistant, etc., is low-risk in the sense that the startup costs are minimal, so you're not risking much capital, but riskier in the fact that your future income depends not only on you performing work for clients, but also obtaining the clients in the first place. And, if you're the only service provider, if you're sick or otherwise unable to work, there's no income coming in.

Ultimately, you have to ask yourself:

Just how much risk are you willing to take on?
How risky is your new venture?
Have you done everything within your power to reduce the risks?

There's no one right answer for any of these. Bigger risk usually means bigger reward, but if you sacrifice other things that are important to you to get there, it may not be worth it. What you have to do is figure out what will work for you and make sure your business fits with it. Otherwise, you're setting yourself up for stress, not success.