How Much Risk Should First-Time Entrepreneurs Take On?

Accepting risks is a skill that can be learned. When you're ready to launch a venture, consider these five tips that have proven effective in the classroom.

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By Amy Rosen • Jul 24, 2014

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Risk, especially entrepreneurship risk, has two parts: assessment and action.

After recognizing an opportunity and measuring the risk by talking to experts and doing your homework, the next part of the entrepreneurship mindset is taking that risk.

But how much risk is appropriate?

It would be easy if there were a magic formula that could tell us when risk is calculated and smart versus when it's not. But there isn't.

Related: What Successful Poker Players and Entrepreneurs Have In Common

The track record isn't clear. For every successful entrepreneur such as Richard Branson who preaches taking risk, there is another who urges caution when doing something such as leaving a steady job to launch a new venture.

While you can always choose not to take risk, that means you're essentially choosing not to be an entrepreneur. That's fine. Risk and entrepreneurship aren't for everyone. But there really isn't a path to entrepreneurship that doesn't include risk.

To win, you have to bet.

For those who aren't naturally adventurous or risk-takers at heart, being able to bet -- risking your money, energy and ideas -- is a skill. Like any skill, it can be learned. It gets easier when you watch others do it.

Ask any so-called serial entrepreneur -- people who've taken venture risk over and over again. Dale Turken is one. Counting his latest endeavor, ScrapGo, he's launched a dozen companies across several industries.

"Taking risk gets much easier with practice," he says.

That's why we teach risk taking as an essential part of thinking like an entrepreneur.

Through practice and observation, we know we can teach tomorrow's entrepreneurs to bet smarter and more often. But unlike practicing entrepreneurs whose wagers have real, lifelong consequences to families and industries, we teach taking risk in the comparative safety of a classroom.

Our students still take risks. They are required, for example, to present ideas in front of their peers, and many go on to business-plan competitions where they present in front of hundreds of people including established business leaders. For high school students, these are usually huge emotional investments that help prepare them to take and manage future risks.

Further, in a classroom, teachers and mentors challenge students to reach higher and risk more. When they fail, it's fine.

Related: Sage Advice for Entrepreneurs From America's Greatest Risk Takers

By watching, doing and preparing, future entrepreneurs get more comfortable with risk. They quickly become less nervous and more confident in their ideas and goals. As they learn that they can also influence the outcome, a few blossom into risk tigers -- throwing more energy and passion behind their investments.

Not everyone is Richard Branson -- the living caricature of a thrill-seeking maverick. For the rest of us, that safe space to experience risk is essential. It's doubly essential for young people who may be experimenting with financial and business risk for the first time.

When you're ready to take your risk and make your bets, here are some things from our classroom experiences that may help make the experience -- and outcome -- better.

1. Start small. We send students with $20 in cash to a wholesale mart or district to buy products for resale. That's likely too small a venture for most people -- but the point is the same. If you're new to entrepreneurship risk, it's unwise to risk everything on your first venture.

2, Expect to fail. Failure isn't a bad word or a bad thing. Figuring out what people want by learning what they don't want is part of the process. But that means first-time risk takers should prepare for the possibility that their investment won't pay off. At least not at first.

3. The next matters. While you may not control the results outright, you can influence the outcome of your risk. Hard work, flexibility and marketing can all influence whether your venture succeeds and by how much. Investing in entrepreneurship isn't a lottery ticket. If it feels as though your entrepreneurship risk is a lottery ticket, you may need to back up a step and re-assess.

4. Watch, don't read. Instead of looking back on past successes of others, go to a micro-investor meet up or entrepreneurship club and watch others as they make investments of time, money and energy in real time. Watching them calculate, risk, succeed and fail in a real-world setting will help you spot dangers and opportunities when it's your turn. The people you meet can also be great mentors.

5. Share your passion. When you're passionate and confident, friends and family will support you. Sometimes, an encouraging word is the nudge you need to take the plunge.

Related: The 4 Factors to Making the Best Decisions for You

Amy Rosen

Partner at the Public Private Strategy Group

Amy Rosen is a partner at the Public Private Strategy Group (PPSG) and a member of the President's Advisory Council on Financial Capabilities of Young People. She was previously president and CEO of the Network for Teaching Entrepreneurship and vice chair of the World Economic Forum's Youth Unemployment Council.

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