Risky Business

Startup and risk go hand in hand. But how much is too much?
Magazine Contributor
10 min read

This story appears in the July 2000 issue of . Subscribe »

From the chutes and ladders of day trading to extreme sports that stretch the limit of health-insurance policies, Americans are more fascinated with risk now than ever before. Even the current crop of game shows lure players into gambling away the thousands of dollars they won only moments before. It's no wonder, then, that entrepreneurs are gaining admiration and attention.

Long perceived as the biggest risk-takers of them all (besides, perhaps, bungee-jumpers and skydivers), entrepreneurs tread a less-traveled path, eschewing steady paychecks and regular hours for a more exciting brew of financial possibilities, personal satisfaction and self-owned business success. Like vacationers on their last day in Vegas, they're tempted to bet it all for a shot at the big money-but too much risk, just like not enough, can sink a company before it ever gets off the ground. How can you walk the thin line and manage risk instead of having it manage you? For starters, experts and entrepreneurs agree, the first thing to watch isn't your financial statement, but your level of personal comfort.

Mental Preparation

"There are known risks that you can plan on," says Elaine Biech, a management consultant and author of The Business of Consulting (Jossey-Bass Pfeiffer, $39.95). "As an entrepreneur, you know you're going to be working 60 to 80 hours a week. You need to have the physical and psychological stamina for that, as well as your family's support. You just have to realize that it's a risk to go off on your own."

Realizing that the risk may not be just yours, but also your family's, is a reality check best faced at the start of a business rather than midstream. The more you mentally prepare yourself, the better the chance your gamble will pay off. "You have to be willing to take the psychological risk, knowing that every single thing you do is yours," says Biech. "You have to accept all the responsibility."

Kevin Wielgus is familiar with that kind of responsibility. Wielgus and his partner/fiancée, Dee Tomek, started their Rolling Meadows, Illinois, e-commerce solutions company, VirtualSellers.com, at a table that doubled as both desk and eating area for Wielgus' daughter and Tomek's two children. Despite having three mouths to feed, he and Tomek took a second mortgage on their house to start the business, then a third mortgage to keep it going. Wielgus devoted himself full time to the company, while Tomek kept her day job and did VirtualSellers.com tasks at night.

It wasn't the financial insecurity that caused difficulties, because the amount of their debt actually gave them the determination to move forward. The real risk, Wielgus said, was personal. "I risked my savings, but Dee risked her sanity, working full time during the day and then coming home and working until the wee hours of the morning on our business," he says. "It was difficult for the children to understand why we were working all these hours, and it was a big strain on our family life. A big risk was becoming so personally involved that it put a lot of stress on our relationship. But since things are different now, those stresses are gone."

What's different is that the company has taken off, reaching sales of $150 million last year. Without the happy ending, would Wielgus do it again? Definitely, he says. "It takes a very strong person to take as much risk as we took. You see so many people intent on comfort, they don't take the steps to get things rolling. The result is that everybody wants to take baby steps, but that doesn't work. You need to take that leap."

It's also possible that you'd breeze through a situation that would leave others in the corporate world breathless. Five years ago, Gerard Powell, 36, formed his East Stroudsburg, Pennsylvania, cosmetic-surgery marketing company, thatlook.com Inc., with more than $400,000 of his own money, and he didn't look back. It's all a matter of point of view, he insists. "Entrepreneurs have a different perception of risk," he says. "What a lot of people would consider risky isn't terribly dangerous to those who are grounded in the entrepreneurial psyche. I think they tend to be optimistic and confident; they fear personal failure more than financial failure."

Taking the First Step

Once an entrepreneur has let the seed of risk-taking grow in his or her mind, the next logical step is usually jumping off the corporate ship and leaving behind all those plump and juicy perks like company-subsidized health insurance, the retirement plan, gym and day-care facilities, and, last but not least, the steady paycheck.

"Just taking that first step, just starting, is a risk," notes Rene Reid Yarnell, author of The New Entrepreneurs (Quantum Leap, $15, www.yarnell.com). As each of these entrepreneurs can attest, "It takes more money than you've allowed for; it takes more time than you ever wanted to give it; and it forces you to have cash-flow worries, never-ending expenses and problems with clients. So why do people do it? Because the alternative of working for someone else is so much worse to an entrepreneur. Going out on your own gives you the chance to make a far greater income and utilize your talents to the fullest."

When Brian Boettcher, 27, left a management training program two years ago, he was very aware that he would be leaping off the corporate ladder. "I was on the fast track," he says. "I knew I would be successful in the company, but I had to jump ship, even though it was scary."

Boettcher started ReloNetworks, a San Mateo, California, relocation service that specializes in home and apartment searches. When he noticed a need for such a company in the San Francisco Bay area, he maxed out his credit cards, borrowed money from his family and waited for clients. None came. He toughed it out, set a date to close up shop, and, a week before his self-imposed deadline, landed a dream contract that made his business turn the corner. "When you start a business, you have to be prepared to lose everything that's comfortable," he says. "That creates pressure that one has never experienced in corporate America. It's an important risk to go against industry standards, to do something completely different and creative."

Dan Schmitt, 33, co-founder of Advantage Integrated Marketing Inc. in St. Louis, says he, his brother and a friend started the database-marketing service with $7,000 cash and no plan. He says having no money and no set agenda was refreshing, although it almost drove the company out of business three times.

Once you get used to having no security, it doesn't seem so risky. "People think we're really crazy, taking the risks that we do," says Schmitt. "Last year, we decided to scrap our business model, and we spent $2 million going after a new product. People thought that was a stupid idea, but if you don't take the risk, how can you turn it around?"

Growing the Company In Moderation

As necessary as risk is in starting up, it's possible to get too close to the line. Though his business is thriving, Wielgus still remembers the nights he spent awake staring at the bedroom ceiling, with visions of Chapter 11 dancing in his head. Likewise, Boettcher brought in investors early on and soon regretted the risk of including others in the business; he wrestled himself out of the situation, but it took more energy and money than he'd anticipated. Every entrepreneur has an individual limit, and it's important to know just where that is, whether in the personal or professional realm.

Laura Rembisz, 32, has a thriving IT contracting and placement business, RemTech Business Solutions Inc., in Farmington, Missouri. She took many risks starting up, including walking away from a good sales job, but there are still some risks she has trouble taking. "Since I started, there have been a lot of times when I wanted to grow and really expand, but I've held back because of fear of going too fast and making mistakes along the way," she says. "I hear so many stories about companies that might have grown too fast, so I've had to reel in my energy and make sure we're doing one thing at a time. Part of me wants the company to grow rapidly, but everything I've done I did in an educated way with the numbers in place, and that's the way I want to keep doing it."

Richard Chang, author of The Passion Plan: A Step-by-Step Guide to Discovering, Developing, and Living Your Passion (Jossey-Bass Pfeiffer, $25, www.thepassionplan.com), says there are other risks that entrepreneurs should avoid, such as going into business without a series of contingency plans and partnering with less-than-supportive compatriots. "One risk you should not take is to surround yourself with people who can hurt the business venture you're creating," says Chang. "Your drive can get depleted, and it can be very draining if you're around the wrong people. As you're growing a start-up, if you get people not tied in to that vision, you run the risk of having people sidetrack you. That includes hiring; if you're hiring the wrong kind of people who don't understand the track you're on, then the risk is that the people you're investing in are going to drain you."

Chang says that risk is personally defined, just like its limits. "A lot has to do with what your perspective is toward your venture," he says. "Risk is always there, but if you spend most of your time focusing on that, you might drive yourself into self-doubt or procrastination-you can be overcautious or lock yourself into not wanting to move forward. I don't think in terms of failure or risk-I try to think in terms of the happiness and success that can arise from risk."

What's Your Type?

Frank Farley, a psychologist at Temple University in Philadelphia, knew that there must be more to personalities than Type A and Type B, so he coined a new type: Type T. "These are the people who take risks because they're exciting-they're thrilling," he says. "All human progress depends on these people. If you see substantial progress being made, you'll see a Type T there. The essence of capitalism is risk. Entrepreneurship demands it." The "T" stands for thrill-seeking, and Farley says entrepreneurs fit the classification to, well, a "T." If you want to see how you stand in the alphabet game, he offers this checklist:

Type T personalities:

  • Are motivated by variety, novelty and change.
  • Thrive in uncertainty and unpredictability.
  • Tend to adore intense experiences.
  • Hate too much structure and too many rules.
  • Have high energy levels.
  • Believe that they control their fate and that destiny is in their hands.
  • Tend to show independent judgment and like to make up their own minds.
  • Are very curious about how much and what they can do.
  • Eat challenges for breakfast.
  • Often say they don't take any risks at all, even though others feel they take enormous risks.

Elizabeth Millard is a freelance writer who has never bungee-jumped but does try to eat challenges every morning as part of a healthy breakfast.

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