Risk. It seems to be at the heart of entrepreneurship. Whenever I ask a group to describe entrepreneurship, the word risk is always one of the first things people mention.
Most often people associate risk with failure. This is commonly called "sinking-the-boat risk." It is the risk of putting your money, your time and your reputation into a new business only to have it fail.
We know that only about half of entrepreneurial ventures survive five years. It should be noted that there is an urban myth that only 10 percent to 20 percent of new businesses last that long. However, this myth has never been supported in any study on business survival.
The complex and uncertain economic times that we now face only heighten the perception of the risk of failure. The thought of starting a new business in such a weak economy with high inflation is giving pause to many aspiring entrepreneurs.
However, there is another type of risk that is not always given its due. It is the corresponding risk associated with not pursuing an opportunity in the market — we call this "missing-the-boat risk."
Middle Tennessee entrepreneur Charles Hagood, co-founder of The Access Group and Healthcare Performance Partners, describes this type of risk in my book, Bringing Your Business to Life (co-authored with Michael Naughton, a professor at the University of St. Thomas in St. Paul, Minn.)
Hagood says: "We weren't as aggressive in the very early days as we probably could have been. I think we didn't realize all we had to offer. I think we lost a lot of opportunities in the very early days, not recognizing what was there."
Aspiring entrepreneurs should keep in mind that just as the risk of failure can increase during tough times so can the risk of missing a viable opportunity. Entrepreneurs can actually get too cautious during tough economic times like those we are experiencing today.
A slow economy and inflation do not shut down new opportunities. Many markets do not feel the effects of an economic turndown. In recent conversations with entrepreneurs here in Middle Tennessee, fewer than half report a slowdown in sales.
Understand the economyWhen looking at a new opportunity, it is critical to understand how the current economy affects, or does not affect, its viability. There are still many great markets that are untapped or underserved and probably fewer competitors willing to take the risk to serve them.
A weak economy can actually create opportunities. Many new businesses are taking advantage of new niches being created in this down economy. For example, when banks foreclose on houses those properties are often left in disrepair. People take light fixtures, appliances and even carpeting out of the house before they vacate it. New businesses are popping up that restore foreclosed houses for the banks so that the properties are marketable.
Clearly we need to be more vigilant in assessing opportunities due to the enhanced risk that can be a result of tougher economic times.
But remember, there are still many opportunities out there, and people who pursue them prudently can still find great success.
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