You don’t need to love risk-taking to start your own business
A lot of people who would like to start a business think the task is too daunting. But following a passion is not as high risk as you may think. Conventional wisdom about entrepreneurs being big risk takers and living on the edge is not all that realistic. In fact, there are ways to minimize the financial risk and emotional drama of going after your dreams. And, most of the skills you need to be an entrepreneur, you can teach yourself.
Alex Shear founded the production company Projectile Arts, in order to produce the documentary, “Kokoyakyu: High School Baseball.” The topic of baseball appealed to Shear, in part, because of the risks involved. “There is so much failure” in baseball, says Shear. He wanted to know how players deal with it. In the meantime, he had to deal with those same issues himself, starting a business to make the documentary.
Like many people, Shear is not a fan of huge risk: “I didn’t know what I was getting into. If I knew I was going to have to move twice, sell my car, and go broke,” I probably wouldn’t have done it. “You need to be stubborn and thickheaded and not think things through all the way,” advises Shear.
In a case like this, Saras Sarasvathy , professor at the University of Virginia’s Darden School of Business, told me that she asks her students to look inside themselves: “Why do you want to open a restaurant? Is it because you love to cook? Then you can have a catering business out of your home. Is it because you have a great location? What else can you put at that location that would be more likely to succeed?”
Have basic skills in the field you are choosing. Sarasvathy uses the analogy of cooking a meal to describe the entrepreneurial way of thinking. Some people have a list of ingredients on a recipe and follow its steps exactly. Other people walk into a kitchen, see what ingredients are on hand, and whip something up. If you want to start your own business, you should be a person comfortable with no recipe. “But,” Sarasvathy cautions, “you need to know how to cook.” Both types of people probably will come up with good meals if they have cooking skills, and both will come up with bad meals if they don’t
Not knowing exactly what you will create is OK. Sarasvathy told me: “Entrepreneurs don’t believe in planning because they don’t want to be in a future that is predictable. If you want to create something new, then the future is unpredictable. If you can predict what will happen, there is no room for creativity.” This also leaves room for genuine partnerships, which you will need.
Get help in a partner. Finding a business to launch is a soul-searching venture, because you have to be passionate about your choice. But “part of your search for passion should be a search to know your skill set. Ask your parents, mentors, and friends. Then try to match skills you have with your passions and fill in what you need,” said Andrew Zacharakis, professor at Babson College. Most feelings of risk come from doing things you have not done before, so surrounding yourself with people who complement your skills can minimize risk.
Relax. The point of entrepreneurship is to have fun doing something you’re passionate about. But a small-business owner’s mind can race constantly. Learn to control this and business will feel less risky.
Jim Fannin is a success coach whose clients include more than twenty Major League Baseball players. He told me that research has shown that wildly successful people have 1,000 fewer thoughts a day than others, which allows the successful people to have exceptional focus on their goals.
Shear says he tried to focus on his next step instead of looking at the whole project, which would have been overwhelming. “If you think too much about the big picture it can paralyze you — mess you up in the moment.”
Fannin agrees. There are so many things you can worry about, so “I tell people to go on a mental diet,” says Fannin. “Cut out thoughts that won’t make you better because they hold you down.”
You need a sense of peace to perform well. Fannin says that just taking deeper breaths will slow your thinking and help your focus.
Stay optimistic. People who have big success have optimism. The key is to manage your thinking. When something bad happens, “learn from it and move on.” If you let yourself replay bad situations, you will get used to seeing your life that way.
Seventy-five percent of people report that negative thinking goes away if you look toward the sky. So for those would-be entrepreneurs trying to fend off negative thinking, Fannin says: “Chin up.”
This is one of your best columns (see, I’m not always disagreeing with you.)
The whole “entrepreneur as risk taking hero” thing has been way overdone in pop culture. While some risk is inevitable in any start up, the percentage move is to control and minimize risk as much as possible.
A business plan – even a mini plan – is an essential first step if you want to minimize risk. Don’t jump from the start to the dream; put some thought into the necessary intermediate steps. Recognize that the plan will be wrong in many important respects (I read somewhere that business plans are God’s way to make fun of entrepreneurs), but the plan can be changed in light of opportunities. The point is not to create a plan with the traditional hockey stick earnings curve; the point is to suss out the issues you can expect to face in getting the business going and to get an idea of how big it can be if it works. The plan can be really brief, even a page or two, but some thought as to what is coming can make all the difference. Don’t get hung up on polishing the perfect plan, but do spend a few evenings thinking a step or two ahead.
Understand the capital requirements of the business going in, and have a clear idea where that capital is going to come from. The less capital required, the less risk. Understand cash flow, and plan on it. Many profitable businesses fail because as they grow they must spend (e.g., buy inventory) in advance of revenues, and if the cash isn’t there to make those expenditures they end up closing down.
If it is your first business, do yourself a favor and start out with something that requires little capital and has a pretty good chance of success (there’s a reason that lots of entrepreneurs of older generations had a paper route as their first business experience). Do this while being supported by someone else or while keeping your day job. You will learn a lot, and your mistakes are unlikely to leave you with any permanent injuries. Today, the internet offers a lot of opportunities for relatively low cost, low risk businesses that may not turn into powerhouses, but that do let you get first hand experience with business realities. Once you have run any business, however small, your chances of success at the next one go up, so it’s a good idea to do the equivalent of a paper route before making a serious committment.
Great column,
A former entrepreneur myself, in a different country though, I think that entrepreneur are definitely not less risk averse than the general public, but they’re much better at actually evaluating risks and opportunities and at acting on it. I myself am very risk averse, but once you put actual numbers and figures on the risk reward equation, even a chicken like me can go ahead and start a venture with some peace of mind.
On a different note, I was wondering if you knew where I could offer offer my services, pro-bono, to start-ups in need of an extra pair of hands or an additional brain to brainstorm. I miss the thrill of the small business and would like to get back into it a little before doing it again on my own in some years.
Great one Penelope!
I agree that entrepreneurs are not Superman style risk takers. I might be referencing Guy Kawasaki here, but entrepreneurs see risk a different way than other people. They are incredibly confident in themselves and don’t see themselves as taking a risk but working hard to achieve certain goals. You are right, optimism is needed to help achieve them.
While there are always exceptions, most people follow “Maslow’s Hierarchy of Needs” in their lives. If you can’t eat, then how can you be driven to succeed in your business? Uuless, your food depends on its success…
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Hi, Evan. I don’t think all entrepreneurs are that type of person you are referring to — the tech-type that Guy Kawasaki writes about so often. In fact, most entrepreneurs are women, not men. And a lot of women start their businesses for survival — because they cna’t leave their kids all day and they need to earn money. So the idea that entreprneurs are “different” might not be so true anymore. We are all just trying to take care of ourselves (not just financially but in terms of our core needs) and the people who depend on us, and often the best way to do that is to start a business.
–Penelope
Penelope, I like the way you focused on the creative aspects of starting a business. Having an idea of what you want to accomplish is a great first step. But I also agree with oldguy. Cash flow is critical. If you want to start a business, make sure you have some savings to carry you through the start up period (or a spouse or family member who will support you while you get off the ground.)
I would add that with many service businesses, it is not necessary to drop everything and focus full-time on the new venture.
One way to test the waters is to begin doing something on the side while you still have your day job. When I decided to leave the non-profit sector and start my own recruiting business, I contacted a legal recruiter I knew and worked with her informally for a few months. By helping her to source candidates (since I was speaking to lawyers all the time anyway) I was able to learn the business and convince myself that I would enjoy being a recruiter.
But I also got some good advice from a lawyer who had successfully launched his own law firm (after he had been practicing as someone’s associate for several years.) He told me that the only way to be truly successful is to fully commit. And he was right. My earlier attempt at starting a mediation practice on the side was not that successful. But knowing that failure was not an option helped me succeed at recruiting.
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Great advice, Stephen. A great way to reduce the risk of a new business is to do it on the side. Too often we think of entrepreneurship as all or nothing, black or white. But it’s not. So much of it is about educating yourself about business and collecting self-knowledge so you choose something you like. These are tings you can do in addition to a day job.
–Penelope
There is no common advice for entrepreneurs and risk depends on few factors
1) What stage of your life are you starting your business.
2) The Starting scale
Do read http://www.idealwebtools.com/blog/11lessons-entrepreneurs/ and http://paulgraham.com/startupmistakes.html. Avoid the startup mistakes and it will help.
>> Get help in a partner
This is very very important. It will be good to start a business with a partner, whom you can trust and should posses some needed skills.
Do not forget one thing – Now people are working with you believing you, keep the trust.
Risk is relative. Entrepreneurs are often perceived as big risk takers because they take actions that we consider risky. But for the entrepreneur, who has studied the options and developed an expertise, the action is perfectly reasonable. One person’s risk is another person’s comfort zone.
Penelope, this is a great post! My favorite bit is about successful people having less thoughts per day than others. I’ve found in my own experience of starting a company that if I can just focus on the task at hand and curtail my thoughts that relate to worrying about the future, worrying about money, stressing about what happens if I fail, I am much more successful and productive.
(I was directed here from a link from I Will Teach You To Be Rich)
This is a really good article. I was recently in a discussion with some people about starting your own business and your article has gotten me to reconsider my original position. I’m definitely going to point this post out to them.
Love the blog, I’m definitely hitting the archives later!
Excellent post, Penelope. While not explicitly stated, it should be understood that all of these factors are interrelated. They are, as you put it, the ingredients.
And it is a very personal journey, as some of your commenters have stated. For some, doing this right out of college (or even high school) is the best way to do it. For others, the entrepreneurial calling doesn’t kick in until 50’s or even retirement.
The point about relaxation struck me the most. As I remind students and clients alike, there are only three things you ultimately have to remember to be successful: 1) inhale; 2) exhale; 3) repeat.
I kind of LIKE having thoughts, though…!
Thanks for the post, Penelope! I was directed here from “I will teach you to be rich,” and I really appreciate your advice that “not knowing what you will create is OK.” I’m a performing classical musician, but what I’ve been working on a way to fuse music, art, and movement to make each more accessible to the general public.
Your article has inspired me to think on a larger scale…
I’m with AlmostGotIt. I LIKE having thoughts, too.After thinking about it, I’ve come to the realization that those of us who are introspective; who really, truly, like to think about things; who are highly analytical are probably just not all that cut out to be risk-taking entrepreneurs.To succeed in an entrepreneurial endeavor, you need to have supreme conviction – and thinkers tend to spend perhaps too much time evaluating risk, playing “what-if”, etc.. A better job for us: chief of staff, advisor to the throne, internal consultant….
I agree that it’s not necessary to be a risk taker inorder to start a business. In starting a business, we must be aware of the factors and consider everything that may affect the business. Having incomplete preparation will surely make it a risk.
You are right about that. Having the basic skills is indeed a factor that minimizes the risk we take from starting a business. Using the right tools and necessary skills should be a good reason for removing the thought of being a risk taker.
plis help me with my research on the life of student entreprenuers. i would like to know how their manage studies and their own work.
thak you for the work andthe reaserch
mephina, I am a student entrepreneur. It does take a lot of your time, but I enjoy doing it. I am actually hoping I can support myself before I graduate, but we will see. :)
Great post, I do just about all of those things, they are great tips. Working with a partner is a huge help (as long as you agree on things). It sure helps take a lot of the stress off. I don’t think I would have ever started out if I didn’t have someone to go in it w/ me.
mephina, I am a student entrepreneur. It does take a lot of your time, but I enjoy doing it. I am actually hoping I can support myself before I graduate, but we will see. :)
Great post, I do just about all of those things, they are great tips. Working with a partner is a huge help (as long as you agree on things). It sure helps take a lot of the stress off. I don’t think I would have ever started out if I didn’t have someone to go in it w/ me.
Risk is relative. Entrepreneurs are often perceived as big risk takers because they take actions that we consider risky. But for the entrepreneur, who has studied the options and developed an expertise, the action is perfectly reasonable. One person’s risk is another person’s comfort zone.
I always wanted to start my own business. I am not a risk taker exactly and I can really relate to what you are saying. what you are saying. I am currently working hard in a company and hopefully and eventually I will be able to start a company of mine. It is not about risk. I believe that it all depends on planning.
Penelope,
I liked your advices, but i believe, Business & Risks walk on a parallel road, I mean if you are in to business, there will always be situations (Expected or unexpected) that put you in a risk of something.
Great article it will help new Entrepreneurs to remain focused on bussiness risks it is not possible to start a new bussiness without taking a risk.
Regarding your comment:
“In fact, most entrepreneurs are women, not men. And a lot of women start their businesses for survival – because they cna’t leave their kids all day and they need to earn money.”
Thank you. I agree that business-owners don’t fit that archetype anymore. I know because I am starting my own, and I am nowhere near that ballsy, “seeing risk a different way” type. I just had my second child, I need to have the flexibility to devote more time and creativity to my parenting job, and I have a solid set of skills and many contacts in my community to partner with–so I am planning to go out on my own within the next few months. My husband was actually the one who validated the need, as he is experiencing great growth in his career and is no longer able to take 50% of the “kid duties”–the mundane stuff like sick days and Dr. visits, that is–and often is working after hours and can’t devote as much time to homework, storytelling, backing me up on cooking dinner, soccer, etc.
I guess my point is that these “real life” constraints are never a part of the archetypal entrpreneurial story. The truth is that many people find themselves in a situation where they must start their own gig to survive–quite literally. One of my good friends found herself divorced by the time her daughter was nine months old–and laid off from her job as a reporter soon after. You know how I met her? She consulted for the company I worked for. Her comment was “I have the perfect job for a wife and mother–only I’m no one’s wife.”
Penelope, despite my incoherent rant above, I am a fellow communicator (of the marketing kind) who is now addicted to your blog. Keep it up–I am thrilled to find it.
That is an interesting point of view, but in our days i `m sure that a person who wants to start it`s own business must have money and new ideas to surpise the users with something new
Bardzo piÄkna strona.Witam i życzÄ wielu sukcesów…
This is a really excellent read for me. Must admit that you are one of the best blogger I ever saw. Thanks for posting this informative article
There are lot of people that love to take risks, not only in business, but in real life too.
Your post is really good and informative. thanks for sharing the great ideas.
one of those informative posts i get interested reading with. this is very helpful not just to bloggers but also to those readers out there.
Another businessman man told that the smart guys learn from the others :). Same idea not try something new.
I always wanted to start my own business. I am not a risk taker exactly and I can really relate to what you are saying. what you are saying. I am currently working hard in a company and hopefully and eventually I will be able to start a company of mine. It is not about risk. I believe that it all depends on planning.
10x for sharing your knowledge.
Dear Penelope, I fully agree with you :-) Best wishes from Shanghai. Prof. Dr. Savas Tumis
Dear Penelope, I fully agree with you :-) Best wishes from Shanghai. Prof. Dr. Savas Tumis
Penelope, I think you’d make a good sculptor. You start with a big block of urban legend and received wisdom, then slowly you chop the fat and dross away until at the end the slim, unadorned truth is all that’s left.
My tip for budding entrepreneurs would be (if at all possible) to try and start something small as a side project while still earning a “wage” somewhere else. Whatever it is you’re planning, it’s going to take a lot longer than you planned to turn it into a saleable product or service. After that, there’s more work still in marketing it.
If you embark on an “all or nothing” venture, then you may be gambling on the toss of a coin.
In the first 12 – 18 months what you’re going to be investing in, is the continual improvement in your product – or adjusting your offering in subtle ways until it “resonates” with your target market.
Time and money pressures often stop entrepreneurs ahead of time, – when they were so close to realisingtheir dreams. As econd source of income can buy you some valuable time and literally be the difference between success and failure.
I like what Oldguy says. I’m an old guy myself, with many years of entrepreneurial experience. Planning, as in working on a business plan, is very important for entrepreneurial success. The exercise of making a written plan forces clarity in one’s thinking, helps the entrepreneur to identify assumptions they’ve made about their future business, particularly in respect to their strengths, weaknesses, competitive advantage, capital requirements, etc.
As econd source of income can buy you some valuable time and literally be the difference between success and failure.
Your post is really good and informative. thanks for sharing the great ideas.
You cannot be successful if you have
never failed. That is the importance of risk-taking. Most of the time, people
don’t see the importance of failing. But failing can help an individual grow in
knowledge and experience.
Cameron Scott
I always wanted to start my own business.
10x for sharing your knowledge.
I think that this is an informative blog and I will tell others about it!
Thanks for this info, extremely useful to use! Keep up the great work!
Great read, thanks for this!!! Keep up the great work