Risk Taking

Know How Much Risk You Can Stomach Before Launching Your Own Business

Know How Much Risk You Can Stomach Before Launching Your Own Business
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Although we believe we live in the ultimate entrepreneurial era, we are often reminded that history is filled with periods where risk taking was either encouraged or frowned upon. When a society is inspired to take risks it often yields advancements and drives further appetite for risk. Then, as our risk/reward balance continues to skew, we find periods of bust followed by cycles of reduced investment and zero tolerance for risk. This makes more sense when we think about our individual feelings on risk taking.

For many people, taking risks is anything but palatable. It’s no wonder: You’re quite literally stepping outside your comfort zone and potentially have a lot to lose. But if you want to start your own business, you’re going to have to get used to it, and understand patience plays a big part.

Related: Richard Branson on Taking Risks

An emotional game.

As much as professional risk takers work to make quantifiable and objective decisions, the truth about risk taking is that it is an emotional game. The excitement of the opportunity can be as exhilarating as risk aversion is paralyzing. Our previous experiences, whether good or bad, inform our emotions and make us either more or less likely to take risk. 

Rather than ignoring and stuffing down the emotional aspects of risk taking, I prefer to address it head-on at the start. Begin with the downside, and ask yourself what could go wrong. Imagine living a life in a world where you took a risk and the worst case scenario played out. How does it feel, what is it like and can you handle it? If so, then allow yourself to imagine the moderate-to-good case playing out. What does the world look like in this scenario and how does this feeling compare to a world where the worst case occurs? 

Related: Thriving in Finance Requires Patience and Humility

As an example, my emotional connection to a cause made the decision to invest in Practice Fusion a worthy risk for me. This was several years ago, when the healthcare space was seeing very little VC attention, so the risk was even greater. Also, at the time, there were 300 competitors and the company had very little market share. However, the possibility of a world where connected doctors would drive better outcomes and a chance to help solve some of our nation’s healthcare woes outweighed the risk of passing on the investment and not being a part of that history.

Patience is paramount.

It’s also helpful to realize that no matter how exciting an opportunity, things will take time to play out. There will be frustrations and setbacks, and it will be a long-slog no matter how fast things are moving. Get comfortable that there are no overnight successes. Realize you’ll be working on this opportunity for many years, even if it is successful. Make sure you are comfortable with that, and make sure the enthusiasm you have will last. This will be more likely if you have a lot of passion for the product or service you’re working on.

If you’re comfortable with the downside, excited about the upside and prepared to handle the ups and downs that come with any relationship, then you’re ready to make your next move and start investing your time fully in the business. Just remember to repeat the mantra: with great risk comes great reward.

Related: Starting Up in the Developing World: More Risk, More Reward