The entrepreneur is often portrayed as an individual that risks much. Is this really true?
Yes and no.
While it is true that entrepreneurship requires risk-taking, it’s often not as “risky” as it first appears. Most of the successful entrepreneurs I’ve come across have learned to manage risk well (i.e., They have developed ways to evaluate and minimize risk.). In other words, it’s quite possible that entrepreneurs aren’t necessarily greater risk takers than any other person. I think that many entrepreneurs simply have a greater confidence in their own abilities to pursue an idea [granted, some have a false sense of ability about themselves
] and a willingness to do the hard work of managing risk.
The following are some ways that I’ve seen entrepreneurs manage risk:
- Think Team – Entrepreneurs who are self-aware recognize what they do really well and what they don’t. In areas that are not strengths, entrepreneurs quickly look for people who can compensate and lead with expertise. It’s important to add here that this does not mean that entrepreneurs don’t go out of their way to learn more about less informed areas. In fact, successful entrepreneurs have a track record of learning enough about an area they entrust to others in order that they may better engage and form the direction of their overall efforts. Gathering a great team greatly reduces risk for a venture.
- Don’t Give Up Your Day Job – Many entrepreneurs wait until the last minute to jump fully on board with a new venture. In other words, they don’t just dive into a new opportunity simply because it’s a new idea. They recognize that ideas take time to develop and may require months, if not years, for actual implementation. They choose to put in double time in order to position themselves to completely move over to their passion. For example, my wife and I dedicated about 18 months towards developing my current company by designating “after hours” time to work on it and adjusting our budget in order to save money to start it. As romantic as “dropping everything” to pursue a dream may sound, most entrepreneurs who have done well also planned well.
- Finances – Yes, money. Even if finances are not your strength, you still have to continue to learn more about it. Period. Learning some basic skills in managing money, reading financial spreadsheets, forecasting budgets, etc. will save the life of your company or organization.
- Penny Pinching – Unless you are independently wealthy or have money to blow, most entrepreneurs do their best to lower overhead in running a business. I’ve heard (and personally lived out) stories of entrepreneurs doing everything from recycling paper clips they receive from others for the office to bartering services with freelancers and vendors to collecting coupons. The point being that the working towards increasing the bottom line is vital to the survival of new start up. This is not to say that you shouldn’t spend any money, but rather, it’s important to minimize costs when possible.
- Do Your Homework – There’s no excuse to not becoming an authority in your area of passion. One of the main benefits of knowing your trade well is that it will significantly lower risk. The ability to see the current state of one’s industry as well as project where the field is going is a must for entrepreneurs. If you are passionate about your work, supplement it with regular learning and networking with others in the field.
Does entrepreneurship require risk? Absolutely! Nevertheless, there are some practical ways of minimizing risk for greater return on investment.
