When I tell folks I am an entrepreneur, they often respond that I am brave for taking such a huge risk. Many say that they’d love to start something too, but worry about the risks. Their reaction reflects what is meant to be a fundamental truth about striking out on one’s own: it is all about risk and reward, and if the reward is so high with startups (at least those in the headlines) the risks must be massive too. The thing is: I don’t think my chosen path has been risky at all, and I don’t think entrepreneurship has to be risky.
The Financial Risk
Potential founders have visions of losing their house on a business venture gone wrong. People also worry about reputational risks–what will people think of me if I fail?
The financial risk can be mitigated by starting a certain type of company and seeking certain types of financing. My company, Getaway, has raised more than $80 million in equity financing, meaning I’ve got a lot of investors around me who expect their $80 million back with a meaningful return. That is real pressure. But the most stressful company I started was a single-store frozen yogurt shop I opened with a friend during college.
We only got $50,000 in financing and it was in the form of a bank loan with a personal guarantee. That personal guarantee meant if we didn’t pay back the loan, the bank would come after everything we had. Raising equity from venture capital or private equity firms has its downsides, but I’ve never heard of either asking for a guarantee where you put your house and all of your assets on the line. Only certain types of companies at certain stages can secure this type of capital and those who get it have found a way to finance their business with low personal financial risk.
The financial risk people worry about after financial ruin is their ability to earn a decent income. Often I find people have a misperception about what they can earn in income as an entrepreneur–that they’ll be strictly limited to eating ramen noodles. It is true that in the earliest days a venture typically has nearly no money. It is too early to have meaningful sales or traction with investors. But with a little scrappiness and a promising idea, it is often possible to raise a round of seed capital and begin making the most fundamental investments.
Invest in Yourself
In my experience, if an investor believes enough in your idea to write a check, then they want to see you fully focused on bringing it to reality. They don’t want you to pay yourself so little that you are distracted from the work (by moonlighting or worrying). I’ll never pretend that entrepreneurs do or should get paid what they might earn in a Fortune 500 company, but in quiet conversations with fellow entrepreneurs, most folks I know that have raised external capital are paid market rate or close to it.
With financial risks at least partially reduced, people worry about their reputations. The truth is that we live in a time and place (for those of us in America and increasingly the rest of the West) that is probably the most accepting of failure. We rightly celebrate failure as it teaches us so much. While I do not believe that everyone should be an entrepreneur, it does seem these days there is more judgment out there for being a corporate lackey than an entrepreneur, even one who fails (believe me as I have more than once!).
Some ventures are truly risky. Mortgaging the house to expand the farm is risky. Making art is risky. Bootstrapping your startup with a house full of kids or parents to take care of is risky. Spending your life doing something you hate because it feels safer, to me, is risky. Starting a venture-backed company where you get paid a salary and have a shot at participating in an exit is not that risky.