When I tell people that I am an entrepreneur, they often reply that I am brave to take such a big risk. Many say they would also like to start something, but are concerned about the risks. Their response reflects what is meant to be a fundamental truth about going out on your own: it’s all about risk and reward, and when the reward is that high at startups (at least the ones in the headlines), the risks must be huge too. The point is, I don’t think my chosen path has been risky, and I don’t think entrepreneurship has to be risky.
The financial risk
Potential founders have visions of losing their home to a business venture gone awry. People are also concerned about reputational risks – what will people think of me if I fail?
Financial risk can be mitigated by starting a certain type of business and seeking certain types of financing. My company, Getaway, has raised over $80 million in equity financing, which means I have a lot of investors around me expecting their $80 million back with meaningful returns. That’s real pressure. But the most stressful business I started was a frozen yogurt store I opened with a friend during college.
We only got $50,000 in financing and it was in the form of a bank loan with a personal guarantee. That personal guarantee meant that if we didn’t repay the loan, the bank would find out about everything we had. Raising equity from venture capital or private equity firms has its drawbacks, but I’ve never heard of asking for a guarantee where you put your home and all of your assets on the line. Only certain types of companies at certain stages can secure this kind of capital and those who get it have found a way to finance their business with low personal financial risk.
The financial risk people worry about after a financial downfall is their ability to earn a decent income. Often I find that people have the wrong idea of what they can earn in income as an entrepreneur – that they will limit themselves strictly to eating ramen noodles. It is true that in the first days a company usually has almost no money. It’s too early to have meaningful sales or traction with investors. But with a little carelessness and a promising idea, it is often possible to raise a round of seed capital and make the most fundamental investments.
Invest in yourself
In my experience, if an investor believes in your idea enough to write a check, they want you to focus completely on making it a reality. They don’t want you to pay yourself so little that you are distracted from work (by moonlight or worry). I will never pretend that entrepreneurs are paid or should be paid what they could earn in a Fortune 500 company, but in quiet conversations with fellow entrepreneurs most people I know who have raised outside capital receive a competitive compensation or in near it.
Now that financial risks have been at least partially reduced, people are concerned about their reputation. The truth is that we live in a time and place (for those of us in America and, increasingly, the rest of the West) that are probably the most accepting of failure. We rightly celebrate failure because it teaches us so much. While I don’t believe everyone should be an entrepreneur, it seems that these days there is more judgment about being a business lackey than an entrepreneur, even one who fails (trust me, because I have more than once!).
Some ventures are really risky. Taking out a mortgage on the house to expand the farm is risky. Making art is risky. Starting your startup with a house full of kids or parents to take care of is risky. Spending your life on something you hate because it feels safer, to me, is risky. Starting a venture capital backed business where you get a salary and a chance to participate in an exit is not that risky.
The opinions expressed here by Inc.com columnists are their own, not Inc.com’s.
This post Starting a business isn’t as risky as you think
was original published at “https://www.inc.com/jon-staff/starting-a-business-is-not-as-risky-as-you-think.html”