The Real Risks Of Entrepreneurship

Investopedia

Building a new business is a gamble: Not every entrepreneur strikes it big, especially on his or her first attempt. There's also a potential payoff, of course. From startups that earn their founders hundreds of millions of dollars to small businesses that provide a comfortable living for the owner's family, many entrepreneurs have found that the benefits outweigh the risks. Before an entrepreneur has any chance of reaping the rewards, he or she needs to recognize the risks and avoid them.

The Murray Story
The risks of entrepreneurship are very real. Sometimes businesses fail, even organizations that have functioned for decades have disappeared over night as industries have dramatically changed. Even if an idea has a lot of potential, it may cost more than an entrepreneur actually has to get to market. David Murray, who left a six-figure position at Google to found a startup, has found that out the hard way. The effort of getting his product (an iPhone app) to market, combined with an underwater mortgage, has left Murray in debt.

What About Jobs?
Murray's story is not uncommon. Even the most successful entrepreneurs have failed ventures in their pasts. Even Steve Jobs, who operated more than one game-changing company, had numerous failed products in his past, like the entire NeXT platform. In many ways, entrepreneurship is a question of learning to come back from those failures and of structuring your business attempts so that you can afford to fail, if need be. Choosing not to risk everything and protecting your financial security (and that of your family) makes sense for entrepreneurs. When you consider that business models can be as trendy as fashion and that many new entrepreneurs will pursue something that seems popular, the high rate of failure in new businesses is not surprising.

Don't Bet the Farm
It's important to make sure that you're not betting everything you have on the success of an untested idea. Putting every single resource you have into the hope that a business will take off and grow quickly is a dangerous proposition, even if you have a 'sure thing.' There are inexpensive ways to evaluate business ideas before you jump straight into mass production. You can also minimize the risks you're exposing yourself to by limiting how many of your assets you risk.

Social Risks/Rewards
There are also risks beyond the purely financial. When you invest everything you have into a business, you will almost certainly be limiting your ability to spend time with your family. There can be a high level of emotional strain associated with entrepreneurship. Of course, there are rewards for a family who sticks by an entrepreneur during the process of founding a new company. Even more, an entrepreneur may have the opportunity to reach far more people than otherwise: you may be able to hire friends and employees of your own and have an impact of their lives. You may even find yourself in a position to financially support good causes and organizations. There's no guarantee that any entrepreneur will navigate all of the pitfalls and become successful, but for those who do, there are certainly benefits.

The Bottom Line
It's important to remember that you can reduce the risk of entrepreneurship with some careful planning. In a world where a steady job can disappear in the blink of an eye, it's worth deciding if your other options are just as risky. If they are and you see a great opportunity, don't pass over the opportunity for entrepreneurship just because of the chance of failure.



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