5 Things You Need to Know About Taking Risks as an Entrepreneur
It's impossible to be an entrepreneur without taking a huge amount of risk. Risk is inherent to the whole process, no matter what part of the world you're from. But people take those risks all the time because they believe their ideas are strong and because the payoffs are potentially huge.
At the same time, however, they understand that they’re holding their time, cash flow, reputation, personal capital and possibly even other people, hostage. Building a company is never easy, yet people do it. And, in many cases, like me they will do it over and over and over. (People like me simply enjoy a challenge.)
As a result, I get asked on a daily basis what it takes to be an entrepreneur. And I always reply, yes, take the risk. Simply keep in mind two things: One is that just because you've decided to seize the moment and devote your time and money doesn’t mean that you must take all risks hastily. Measured decisions are important; smart risks are, too. So, yes, you can bet. Just don't bet the farm.
The second thing to keep in mind is that instead of approaching your business as a series of risks at all, you're better off thinking hard about what you currently have and what you can trust in your life. Here are five more pieces of advice about entrepreneurial risk:
1. Trust your idea.
You need a reason to leave your former life behind, to build a company from the ground up, and it had better be a good one. Good ideas come and go, but great ideas need to be seized. Does your product or business offer a solution to a common problem? Does it help complete a process a lot of people have to go through, or frame an industry in a totally new and revolutionary way?
Will your idea be inexpensive to execute but still save potential customers money once it's implemented? Do you have a competitive advantage?
Another question: Will you still be passionate about this idea a year from now? Will others? The riskiest ideas are the trendy ones which follow a previously successful idea by someone else, in industries with a big buzz. The reason is that a normally competitive ecosystem becomes even more competitive.
However, don't ignore trends altogether, because some are broader than you expect, speak generally to one aspect of society and give clues to how we will conduct business in the short-term future. Think about what AirBnB and Uber indicate about the current economy. You could start the next Uber.
2. Trust your emotional health.
The trough of sorrow is real, and many entrepreneurs tend to underestimate its effects. After all, nobody can really anticipate the moment when the passion passes and your small company seems to be at an impasse. This is the point when you’ve lost focus of the light at the end of the tunnel and feel like setting your money on fire (that’s what “burn rate” means, right?). It's the point when your relatives and friends have shifted from supportive to skeptical.
Even before the trough of sorrow arrives, you’ll be spending a lot of time by yourself, away from the security of an office environment, work friends and clearly outlined goals. But before you embark on this journey, trust that you’re going to be okay, no matter what happens. Make sure you have emotional support and a trusted mentor to give you perspective.
Consult a therapist to gauge your mental state. Make friends in the industry, not just potential networking connections, so that you can feel less isolated. You will want to minimize as much risk as possible when it comes to mental health.
3. Trust your ability to spend money with diligence.
You can pretty much assume you’ll be putting up cash from your own pocket, including the salary you won’t be making while you're building your startup. Depending on how you procure your seed money, you may be using a large chunk of other people’s money, too. Not only will you be risking your personal financial security, you'll be gambling with money that isn’t actually yours -- the reason to be extra diligent with your spending.
I personally recommend that you don’t quit your day job until that becomes absolutely necessary. I recommend that you maintain a budget (don’t just tell people “I’m on a budget”; actually plan it out) and that you set out clear financial goals for yourself.
Also, pay down all your bills and get your expenses as low as possible. Next, establish a nest egg. I personally would save at least 12 months' worth of cash that's for nothing but bills and will never go to your startup. Note: This last tip has saved my marriage more than once.
4. Trust key members.
Opening up your company to new members is a milestone in itself -- it’s no longer a one-person shop; and the isolation has lessened, as well as the pressure. However, you'll still need a process to integrate one more member: You need to first be okay with trusting another pair of hands to handle your baby.
This means finding someone who shares the same vision as you, someone as invested in getting this venture off the ground and someone you trust to deliver at the mutually agreed-upon deadline.
The first team new member should be a business partner (which you should totally have, especially if he or she comes from a different background than you). The second new member should be a dedicated lead developer. Note: Here is a guide to programming that I put together, should you need help finding the best programmer out there.
Most important: Don’t hire before you need to, in order to avoid premature scaling. Meanwhile, be open to your team about your needs, and work with everyone to create realistic deadlines and goals.
5. Trust that you'll need more money/resources/priorities than you envisioned.
It’s better to be prepared, right? The reality is, most people embarking on a journey -- whether it’s starting a business, taking a soul-searching trip, starting a new career or having a child -- are operating on a rudimentary idea of what’s to come. You’ve been told things by people who have done it. And you think you have a decent financial forecast, a time line of when milestones will be rolled out and an idea of the various factors involved.
But, at the end of the day, you only have a rough plan. You’re going to get way more than you gambled for. And the more people you bring on to your team, the more demands will be made. The better features and ideas you come up with for your product, the more time and money you'll need to execute and launch each one.
No amount of planning is going to prepare you for the details and the setbacks to come. So, the best thing you can do to minimize risk is to set aside a healthy financial stash, and be utterly clear with your team and financial advisors about your objectives and desires.
You'll find it's worth it. Being an entrepreneur has been one of the most difficult but rewarding journeys I've ever embarked upon. And the journey will likely be the same for you.
So, now that you know, are you ready to start taking risks with me?