If you are already entrepreneur I think you are not a person who don’t take a risk, because you already has taken risks starting your company.
Entrepreneurship is close related with risks and risk taking from the entrepreneur’s side. You cannot become an entrepreneur without some risk that you must to take.
Why there is a risk for entrepreneurial ventures?
You invest your money that you have in your pocket in something that you don’t know if it will bring you more or the same amount of invested money in the future. That’s the first initial risk that you as an entrepreneur take on yourself and in most cases on your family because you must short their satisfaction of needs in exchange for financing your company.
You’l never be 100% sure about the future of your business. You’l be never known with 100% precision how successful will be your company or how much money you’l be earn first, second or third year. Because of that there will be always risks in entrepreneurial ventures that you want to start.
The question that each potential or future entrepreneur need to answer before he or she decide to leave a current job and become an entrepreneur is: Is it worth starting a company compared with the future if you didn’t take this step?
Can your current potential provide surviving?
Each company in most of the cases in early startup stage are based on entrepreneurial potential to bring that business into the life. You’l need to invest your time, your money, your knowledge and your skills into the future of your business.
You can’t start a business without your commitment to it, and that commitment will need your time. You can’t start a business without money, because you’l need to provide all requirements for normal business operations in the future, as an office, equipment, raw material… You can’t start a company if you don’t have enough knowledge about the industry of your new business, market where it will operate or products and services that it will offer to the market. You’l also need different skills that’re much more than the skills required if you have corporate work. You’l need to have negotiation skills, you’l need analytical skills, you’l need sales skills, networking skills…
How much more you have to invest, there will be more risk for you as a potential entrepreneur.
As a first answer these questions about yourself:
- How much money you have, or you can find to fund your company?
- How much time you can invest into building your company?
- Do you have enough skills and knowledge to start such a company?
Real example for entrepreneurial nightmare
I know an entrepreneur who before several months left a large corporate work where he has solid salary ($7.000 monthly) and starts his own company. He didn’t expect to earn such a salary, but he also didn’t expect that his cash will be eaten from the new company in the first three months.
In such a way an entrepreneurial excitement easily become entrepreneurial nightmare. Why this happened in most of the cases?
First because he didn’t make a real scan and analysis of his own possibilities to start a business. He has money, but the start-up process costs more than his predictions. Second, he didn’t make proper sales prediction. Sales and cash flow in the start-up stages are the most important things for small businesses. If it doesn’t have sales then he must invest his own money to survive this stage of his newly created business.
If I recapitulate the example of this entrepreneur we can tell that:
- He invests his time with a large commitment to transfer his business idea into real company.
- He invests his money in new entrepreneurial venture, but he didn’t realize that it will not be enough because the lack of proper sales forecasting for the future. And money becomes the biggest problem for the future of his business success.
- He has knowledge about the business in general.
- He hasn’t enough skills about planning, managing and finances. This lack of skills is something that bring problems after three months of operations. He used aggressive marketing campaigns in the first month after start-up, but didn’t have a proper system to measure the results from that campaigns. In such a way, he spent too much money for advertising without real results for his company.
How much you can earn with your business?
As an entrepreneur you must make predictions about next five to ten years about how much you can earn from your company. It is not the whole income from company, but how much will remain you after you pay all expenses and taxes.
For example, your sales in the first year will be $400.000. After paying expenses and taxes you have only $50.000. Your prediction is that your sales will increase with a 10% annual rate with the same percent of expenses and taxes after ten years you can earn $647.500.
How much you can earn if you stay at your current job?
Now when you know how much you can earn for ten years if you start your company, you must compare that sum with the sum that you can earn if you stay at your current job.
Let’s say that you have annual salary of $50.000 with all benefits you will earn. That is $500.000 for ten years.
Now, what you think is it worth starting a company and leave a current job to earn $147.500 more for ten years?
This is the first part about analyzing your tolerance to risk for startup entrepreneurs. You can read second part where is the continuation of this example in the post titled as “There is much more in risk calculation“.
Question: Do you have experienced problems with your business startup? What’s the biggest risks that you have experienced? You can leave a comment by clicking here.