A hammock out back is comfortable. La-Z-Boys are comfortable. Entrepreneurship? Not so comfortable. Nobody knows more about risk and how to live with it than entrepreneurs. There's nothing like paying everybody else before you pay yourself to make you understand the meaning of exposure to bad consequences or mischance.
Today, the nature of risk has changed. When I was a kid, risk was pretty much something to be avoided. In the golden age of "the man in the gray flannel suit," people wanted to work in big corporate settings; they wanted to look alike, dress alike and think alike. There weren't a whole lot of entrepreneurs around.
What risks can you not afford to take in your business? How will you ensure you actually increase the amount of risk you take? Consider working with your biggest competitor on a joint project. Study new technologies like nano science and quantum computing, and become one of the first to apply them to business. Figure out how to expand your market, not just your market share. And, as life and business continue to speed up, remember that the windows of opportunity for taking risks will open and close faster than ever before.
Consider the following scenario: we're going to flip a coin 100 times. I'll give you $100 for every heads, and if it's tails, you win nothing. You figure you've got nothing to lose and probably $5,000 or so to gain, right?
Let's say instead that you have to pay me $100 for every tails. Do you still do it? Maybe. 50-50 chance. Low risk, low reward.
Now, consider two versions: Version 1: Heads, you win $100; Tails, you lose nothing. Version 2: Heads, you win $300; Tails, you lose $100.
In version 1, you can expect to win about $5,000, give or take, and you've got no risk. In version 2, you can expect to win about $10,000 (500 x $30 = $15,000; 500 x $10 = $5,000; $15,000 - $5,000 = $10,000). But you could lose as much as $10,000 -- unlikely, but possible. There's a fairly good chance, though, that you might lose something.
How much risk are you willing to tolerate for the expected reward? Or, flip it around... how much reward does it take to justify the risk?
There's no right answer. To make matters worse, it's not exactly like flipping a coin. What are the odds that your business is going to be successful? Of course, you believe that you have something that makes your odds better than the average. Every successful entrepreneur has thought that. So have most of the ones who've failed, too!
If you swing for the fences, entrepreneurship may be your best choice. If you prefer a consistent batting average, perhaps you should reconsider. However, if you do decide on entrepreneurship, you may want to consider a lower-risk business.
It is not indicative of a negative perspective to say that an analysis of the possible reasons for failure enhances our chances of success. Can you separate failure of an idea from personal failure? As scary as it is to consider, many of the great entrepreneurial success stories started with a failure or two.
Some types of failure can indicate that we may not be entrepreneurial material. Foremost is reaching ones level of incompetence; if I am a great programmer, will I be a great software company president? Attitudinal problems can also be fatal, such as excessive focus on financial rewards, without the willingness to put in the work and attention required. Addressing these possibilities requires an objectivity about ourselves that not everyone can manage.
Other types of failure can be recovered from if you "learned your lesson." A common explanation for these is that "it seemed like a good idea at the time." Or, we may have sought too big a "kill;" we could have looked past the flaws in a business concept because it was a business we wanted to be in. The venture could have been the victim of a muddled business concept, a weak business plan, or (more often) the absence of a plan.
