When I tell people that I am an entrepreneur, they often reply that I am brave enough to take such a big risk. Many say they’d love to start something too, but worry about the risks. His response reflects what it means to be a fundamental truth about attacking oneself: it’s about risk and reward, and if the reward is so high with startups (at least in the headlines) then risk. Should also be on a large scale. Here’s the thing: I don’t think my chosen path has been risky at all, and I don’t think entrepreneurship has to be risky.
Potential founders have dreams of losing their home if a business venture goes wrong. People also worry about reputation risk – what will people think of me if I fail?
Financial risk can be reduced by starting a certain type of company and seeking certain types of financing. My company, Getaway, has raised over $80 million in equity financing, which means there are a lot of investors around me who expect to get their $80 million back with meaningful returns. That’s the real pressure. But the most stressful company I started was a single-store frozen yogurt shop 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 pay back the loan, the bank would come after whatever we had. Raising equity from venture capital or private equity firms has its downsides, but I’ve never heard of asking for a guarantee where you keep your home and all your assets on the line. At some stage only certain types of companies can secure this type of capital and those who do receive it have found a way to finance their business with less personal financial risk.
The financial risk people worry about after financial ruin is their ability to earn a decent income. Often I find that people have a misconception about what they can make in income as an entrepreneur – that they will be strictly limited to eating ramen noodles. It is true that in the early days there was usually almost no money in an enterprise. It’s too early to have meaningful sales or traction with investors. But with a little carelessness and a promising idea, it’s often possible to raise a round of seed capital and start making the most fundamental investments.
invest in yourself
In my experience, if an investor is confident enough in your idea to write a check, they want you to focus solely on making it a reality. They don’t want you to pay yourself so little that you get distracted (by moonlighting or worrying) from work. I would never pretend that entrepreneurs pay as much as they can or should make at a Fortune 500 company, but in quiet conversations with fellow entrepreneurs, I know that most people who raise outside capital get paid at the market rate or Close to that is paid.
With financial risk being at least partly low, people worry about their reputation. The truth is that we live in a time and place (those of us in America and increasingly the rest of the West) that probably accepts failure the most. We celebrate failure right because it teaches us so much. While I don’t believe that everyone should be an entrepreneur, it seems these days that there is more judgment to be a corporate shortcoming than an entrepreneur, even the one who fails (trust me). Because I have more than once!)
Some ventures are really risky. Mortgaging a house to expand a farm is risky. Making art is risky. Starting your startup with a house full of kids or parents is risky. Spending your life doing something you hate because it seems safe to me is risky. Starting a venture-backed company where you are paid a salary and have a chance to participate in an exit isn’t that risky.