Have you already thought about striking out on your own and starting your own business? If yes, the title of this article may speak strongly to you as it encapsulates one of the key principles of entrepreneurship that I will discuss further in this article. And if you haven’t had the entrepreneurial ‘bug’ yet, It is quite likely that at some point in your life you will! According to academic researches, the number of people who will have some form of entrepreneurial experiences during their lifetime range from 20 % of the population to over 50 % and many more will be thinking about it without finally taking the final step.
Your motivation to become an entrepreneur might be to bring new ‘revolutionary’ ideas or products to the marketplace in hopes of striking it rich and follow the likes of Bill Gates and Mark Zuckerberg or more simply you might decide that you could better leverage your professional expertise by working for yourself instead a getting a fixed salary. You might also be tired of the corporate life i.e. the red tape, having to report to an incompetent and unappreciative boss or you could just be out job with little prospects of finding one. Whatever your reasons, it is also likely that the moment you mention your plans for becoming your own boss to your spouse, friends, and parents, some of them will immediately try to discourage you by using the big “R” word – RISK in bold and capital letters. They will give you a laundry list of what can go wrong and the list can indeed be very very long with a little bit of imagination. When I decided almost 20 years ago to quit a stable job and promising career to move to Asia driven by the need to challenge myself, I must say that words of encouragement were few. Quite on the contrary, I was made aware of all the ‘bad things’ that would happen to me for giving up what I had in France to venture alone into the unknown far away from family and friends.
Is Taking Risk Bold or Foolish?
Yes, entrepreneurship involves risk. Lots of risks! The list of potential pitfalls associated with starting a new venture may appear limitless when you look closely at it. And the statistical failure rates of new business ventures around the world should indeed discourage any rational person from ever venturing beyond the limits of a steady paycheck and the apparently more comfortable and predictable corporate life. While we may admire famous and successful risk takers such as Steve Job or Richard Branson, the truth is that when facing risk, basic human instinct seems to drive most people to play safe and try to run for cover. Many people will spend a large part of their life dreaming of adventure of entrepreneurship without taking the necessary steps to turn the dream into reality.
Risk versus Opportunity
Fear of failure did not stop me, because like many other entrepreneurs, I understand the fact that you can’t get anywhere and succeed in anything in life unless you’re willing to take risks. Actually uncertainty is in the nature of life and taking risks is the basis of any business activities. Obviously, it also means that you have got to be ready to make mistakes and fail with sometime very painful consequences as you could loose all what you have. But is failure such bad thing? It all depends how we learn from it. All successful entrepreneurs had many failures. Actually you cannot be a successful entrepreneur if you have not failed and learned from it before. And realistically, can we avoid taking risk? Risk is everywhere at home and work. No place is really safe in this world. We cannot run away from problems forever and we cannot hide. Everyday you have to make decisions and the bottom line is that your success in both your private and professional life depends in a large part on your ability to make tough decisions that can create value for yourself and for your organization despite all the risks involved. Hence, risk and opportunity go hand in hand. Because opportunity and risk are the two faces of the same coin and they must be managed in an integrated manner in order to optimize the risk/return balance inherent in any activity or business we wish to undertake. Risk and value management should be the top priority of an entrepreneur as his whole business revolves around taking advantage of uncertainty to create value.
Risk Management for Entrepreneurs
Unfortunately, despite the risks involved in setting up a new venture, risk management is too often a low priority for entrepreneurs. Driven by bold optimism and/or denial of, at least part of, the reality, they tend to believe that too much focus on risk management will paralyse decision-making as they are just ‘too many risks to consider’. That as long as the main keys risks have been identified they will be fine. They do understand that there are a lot of risks involved in entrepreneurial activities, but they believe that when problems and challenges surface to hit them, somehow, such situations will result in them finding creative solutions, innovations. Therefore, there is no need for in-depth risk management planning as the future will take care of itself. They are convinced that boldness and self-confidence is the key to success! No what the obstacles and challenges are, they will not fail.
There is nothing more dangerous than an overly optimistic, over-confident and risk-blind entrepreneur. Confusing boldness and foolishness the kind of attitude leaves little space – if any – to proper risk management. When the primary risk management strategy is “hoping for the best”, failure is statistically the most likely outcome. So let me drop the news to all entrepreneurs who think that they do not have time and money to spend on Risk Management…
Entrepreneurship without risk management should be called gambling! Do you want to leave everything you have and your success to chance?
Be an Effective Risk Taker, Not a Gambler
The really successful entrepreneurs who are able to establish durable organizations such as Warren Buffet or Bill Gates are in fact incredibly accurate calculators of risk and are very good at devising strategies to optimizing their own risk/return balance. They won by understanding what they were doing and how much risk they were willing to take to achieve their objectives never by relying on luck.
The case I would like to make is that being an entrepreneur certainly involves a significant level of risk (probably more than any other activities) but there are ways to mitigate and manage risk as an entrepreneur. Like the successful entrepreneurs, you must learn to limit the possible negative consequences of risk while optimizing the potential benefits of its associated opportunity.
Whatever the decision we need to make, our best approach is to become informed, emotionally aware and rationally capable of analyzing seemingly conflicting information and risks to arrive at a sound decision. It is not as tough as you might think.
To do so, we need to understand some basic concepts, methodology and tools of risk evaluation and decision making. Risk management helps you understand the impact of your decisions on all operations. It creates the models and tools to predict outcomes and build the countermeasures to prevent unintended and undesirable consequences. The final outcome is minimized risk and higher returns. To achieve these, you can start to:
- Improve your risk awareness and understand how your ego, emotions and culture influence your perception of risks and the way you make decisions,
- Change your mindset about risk. Since risk is inherent in the nature of life, learn to become more comfortable with taking risks. Without risk, there would not be any opportunity and life would be very boring,
- Always do a potential risk analysis when making important decisions, and finally
- Learn Risk Management methodologies and tools to improve your effectiveness as a decision maker.
In summary, My goal in this article and my chronicle over the next few months is to provide for anyone who is or is considering becoming an entrepreneur, a practical concrete framework for understanding and evaluating the risks of any entrepreneurial venture giving a roadmap for effective risk/return optimization.
Look out for my next post on this subject: “Many are Called, but Few are Chosen!”