how does a business plan help entrepreneurs manage entrepreneurial risk

Risk in Entrepreneurship: Everything You Need to Know

Updated: March 11, 2024

Published: September 02, 2022

Taking risks is a part of daily life — driving a car, going on a trip abroad, opting for the gas-station sushi on that one road trip years ago (no judgment, we’ve all been there). 

An entrepreneur's life, however, is not for the faint of heart. Building a business from the ground up takes guts. Whether you’re years into scaling your startup or dabbling with the idea of being your own boss, use this guide to ensure you’re prepared to navigate the risks of entrepreneurship. 

What is risk-taking in entrepreneurship?

While the word “risk” might make you think of chaos and unpredictability, in the context of entrepreneurship, risk-taking is a calculated and measured byproduct of starting a business. 

Risk-taking in entrepreneurship is the process of identifying, evaluating, mitigating, and trying out potential opportunities and strategies that may help you build or grow your business but could also lead to personal or professional loss. 

Different types of risk in entrepreneurship

According to the Harvard Business Review , business risks are bucketed into three categories: preventable risks, strategy risks, and external risks. 

Preventable risks stem from within an organization (whether a team of one or 1k), are entirely controllable, and should be avoided at all costs. Examples of preventable risks include lying to potential investors, ignoring environmental regulations, or engaging in illegal business activity. 

Strategy risks are beneficial and necessary in entrepreneurship. These risks arise from strategic opportunities that show potential for return on investment. Some examples include launching a new product line, expanding into another country, or bringing on a new investor. 

The final category is external risks. As the name suggests, these risks come from beyond your business operations and are outside of your control. For example, you’ll likely have little to no influence over current economic conditions or states of emergency, but they may impact the success of your ventures.  

Importance of risk-taking in entrepreneurship

A 2017 study at Harvard Business School confirmed what many suspected: A risk-taking personality is a precursor for a successful startup. 

While those who naturally run headfirst toward the unknown are more likely to explore entrepreneurship, anyone can get comfortable with taking bold yet well-reasoned risks. There are some clear benefits to taking intentional risks when starting or scaling a business, including: 

• Getting the first-mover advantage 
• Learning quickly from your wins (and failures) 
• Expanding your experimental mindset 
• Building skills in risk identification and management
• Becoming adaptable to change 

Successful businesses need to continuously evolve and experiment. When it comes down to it, entrepreneurs might as well call themselves Professional Risk-Takers. 

Risk-taking in entrepreneurship examples

Turning a side hustle into a full-time career .

One of the first questions every aspiring entrepreneur will ask themselves is: “When will I be ready to turn my passion projects into a startup?” Trying out your business as a side hustle can be smart because it minimizes the risks of testing product-market fit and finding your first customers. 

But once you’ve built a proof of concept and generated some revenue, it might be time to quit the day job and dedicate yourself full time to your venture. 

For David Khim, co-founder of content marketing agency Omniscient Digital, the decision to launch his business in June 2022 was made even more difficult due to market conditions. 

“This appeared to be a risky time to jump in full time because we focus on services for B2B software companies, which were getting hit hard by the market and seeing layoffs across the board. We wondered if clients would cut us as part of the cost-cutting exercise. We wondered if these software companies would still be open to investing in working with agencies,” says Khim.

“We wonder if we’d be able to get a business loan if we were in trouble. We wondered if the business didn’t work, would we be able to get new jobs?” 

But the founders had already built the business on the side for three years, and therefore were confident in their company’s ability to get clients, service them, and maintain a healthy net profit margin.

A tip for handling this transition: Before you jump ship, have a solid business plan in place. There are plenty of business plan templates online that you can borrow, but think critically about your financial performance and exit plan. 

Use the revenue figures from your side hustle, and model financial projections to see if it’s feasible to take your company full time. And while it might sound pessimistic, consider what you’ll do if your startup goes bust. Baking in an exit strategy with performance indicators and a timeline will prepare you for the worst-case scenario. 

Hiring your first employee 

Depending on your business model, hiring your first employee can come with a variety of risks. First, there are the preventable risks of making sure you follow the mandatory hiring process to comply with the law. 

More important, there are strategic and external risks involved. From the strategic angle, you’re taking on the responsibility for your employees’ livelihood, and adding to your business expenses. Ensure your business is set up to sustain employment by taking a critical look at its financial performance and operations.

And try as you might to hire the right person for the job, you still bear the external risks that the candidate simply isn’t a match in the long run. 

However, the risks can result in rich payoffs. Take Beth Kennedy, founder of marketing agency SATT.co. By August 2021, she knew it was time to leave her job and pursue freelancing full time. In her first five months, she quickly went from having one client to five clients. Her life was consumed with work.

“I originally left my 9-to-5 for more freedom, and somehow I traded the 9-to-5 for a 24/7 work life. It was time to hire my first full-time employee. That’s when it all felt real: ‘What if this all disappears tomorrow? How can I be responsible for another person?’” says Kennedy. 

She evaluated the risk of hiring her first employee and knew that her business had enough funds in the bank to cover an employee’s salary for five months — then took the leap. 

“I hired my first full-time marketing coordinator in January [2022] — she’s a dream come true. Not only has my business continued to grow since then, but both my employee and I are able to have flexibility in our schedules, leaving time for fun, creativity, and life.”

Raising capital for your venture 

If there’s anything that’ll up the ante for entrepreneurs, it’s raising capital. Whether you take out a line of credit , fundraise through a business accelerator, or borrow some money from Uncle Bob’s savings, the stakes to succeed become higher when you take on more cash. 

There are many risks to consider when raising capital. For example, a failed business no longer just affects you; it might result in steep losses for your investors. On the other hand, if you give away too much equity to raise funds, you could lose majority ownership and control of your business. 

Despite the potential pitfalls, raising capital is a necessary component for many startups. Just make sure to do your due diligence so that you’re not taking on more risk than you and your business can tolerate. 

How to improve risk-taking in entrepreneurship

Natural risk-takers, meticulous planners, and folks in between rejoice: Everyone can improve their risk-taking mindset. Use these tips to change the way you think about risk to improve the odds of success. 

Use a risk-assessment framework 

Consider using the National Institute of Standards and Technology’s framework for risk management . This government agency promotes American innovation and industrial competitiveness, but you can apply this handy framework to any type of risk you encounter as an entrepreneur. 

• Identify the risks that your company may face. 
• Categorize the risks based on their characteristics (e.g., product risk, market risk, etc.). and potential impact. 
• Select the potential methods used to mitigate the risk (e.g., bringing on a CTO, releasing a prototype to your target audience, etc.).
• Implement and test the potential mitigation method(s). 
• Assess the suitability of the mitigation methods. 
• Authorize the decision to take on the risk. 
• Monitor performance over time. 

Following this systematic process for reviewing and evaluating risks will help you make smart decisions about which chances to take and ensure that you have mitigation techniques in place. 

Start with smaller risks 

Not all risks are created equal. For instance, deciding to explore your business ideas as a side hustle involves less risk than hiring your first full-time employee. 

If you’re just starting out as an entrepreneur or haven’t taken many business risks in the past, consider prioritizing smaller opportunities that are easier or less costly to explore. This way, you’ll be able to test and learn more frequently, without the fear of significant loss. 

Build a culture that praises smart risk-taking 

Company culture isn’t just for established businesses — entrepreneurs should be intentional about what behaviors and priorities are most important for their company from the start.

Consider including smart risk-taking as a pillar of your culture, even if you’re a solopreneur. Encourage everyone (including yourself) to take calculated and well-reasoned chances. Successes and failures alike should be praised, as long as they follow your ground rules for a worthy risk to take.

Risk-bearing in entrepreneurship

Not every shot is going to hit the mark. Even the most well-researched and promising opportunities might not go exactly to plan. That’s where risk-bearing comes in. 

Risk-bearing in entrepreneurship means taking responsibility for risks taken and accepting potential losses. 

As an entrepreneur, you are the first line of defense for bearing risks. Depending on the size of your business and the magnitude of risks borne, others could be impacted, including investors, employees, and customers. It’s no wonder that stress management can be a challenge for business owners. 

But don’t worry — you’re not defenseless should a business opportunity go wrong. Business insurance can help protect your company from external risks, such as the theft of company property. 

Additionally, your business structure can provide an additional layer of protection from personal loss. For example, starting an LLC can prevent your personal assets from being seized should your company be sued. 

Bearing risk comes with the territory of being an entrepreneur. But with the right tools in place, you’ll be set up to identify, evaluate, and take on risks like a pro. 

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Types & Importance of Risk Taking in Entrepreneurship 2024

In the fast-paced world of entrepreneurship, risk taking is a crucial factor that can make or break a business. Successful entrepreneurs understand the importance of embracing risk and making calculated decisions that propel their ventures forward. 

Risk taking in entrepreneurship involves stepping outside one's comfort zone, challenging the status quo, and seizing opportunities that others may shy away from. 

In this article, we will delve into the concept of risk taking in entrepreneurship (also referred to as risk management), explore different types of risks faced by business owners, highlight the significance of risk taking in entrepreneurial success, provide examples of risk-taking entrepreneurs, and examine the potential risks involved in being an entrepreneur.

What is Risk Taking in Entrepreneurship?

Risk taking in entrepreneurship refers to the willingness and ability of entrepreneurs to make decisions and take actions that involve uncertainty, potential loss, and the possibility of failure.

It is an inherent part of the entrepreneurial journey, as business owners navigate through uncharted territories, innovate, and strive for growth. Risk taking in entrepreneurship involves analyzing potential risks, assessing their potential impact, and taking calculated risks that offer a favorable risk-reward ratio - After-all, most potential opportunities have an element of risk when they're pursued.

Types of Risk in Entrepreneurship:

As an entrepreneur, it's important that you're prepared, knowledgeable and don't take on risk blindly.

Every risk you take should be carefully assessed, this way, you'll be able to objectively calculate the type and level of risk involved to ensure the ROI is worth the effort and potential outcome of failure.

Financial Risk

Financial risk is a common type of risk faced by entrepreneurs. It involves the potential loss of investment or financial resources due to business failures, market fluctuations, or unforeseen circumstances. Entrepreneurs often invest their own capital or seek external funding to start or grow their ventures, exposing themselves to financial risks. Managing cash flow, securing financing, and monitoring expenses are essential aspects of mitigating financial risk.

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Market Risk

Market risk relates to the uncertainties associated with the demand for a product or service in the market. Entrepreneurs must assess market conditions, consumer preferences, competitive landscape, and potential changes that could impact their business. Market risks include changes in consumer behavior, shifts in technology, economic downturns, or disruptive innovations. Staying informed about market trends, conducting market research, and adapting strategies accordingly can help manage market risks.

Operational Risk

Operational risk pertains to challenges and uncertainties encountered in day-to-day business operations. It includes risks such as supply chain disruptions, production issues, regulatory compliance, talent acquisition and retention, and technological failures. Entrepreneurs must identify and mitigate operational risks to ensure smooth business operations. Implementing effective processes, conducting risk assessments, and establishing contingency plans are crucial for managing operational risks.

Reputational Risk

Reputational risk involves the potential harm to a company's brand or image due to negative publicity, poor customer experiences, unethical behavior, legal issues, or product failures. Entrepreneurs must be conscious of their actions, maintain transparency, and prioritize customer satisfaction to mitigate reputational risks. Building a strong brand, delivering quality products or services, and actively managing customer relationships are key to minimizing reputational risks.

Business Risk

A business which takes too high of a risk when launching a new product or entering into a new market can potentially jeopardize its own existence if over-leveraged. This means that it's own employee's may even lose their jobs, which would ultimately affect their own families and lives. Therefore, it's important that taking risks in business is considered carefully.

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Importance of Risk Taking in Entrepreneurship:

To grow your business, you'll have to take some level of risk. However, for what reason would you want to fully embrace that something unexpected may happen.

1. Driving Innovation and Growth

Risk taking is essential for driving innovation and fostering business growth. Entrepreneurs who are willing to take educated business risks often pursue new ideas, challenge conventional thinking, and disrupt existing markets. By embracing uncertainty and experimenting with novel approaches, entrepreneurs can introduce innovative products, services, and business models that resonate with customers and propel their ventures to success.

2. Gaining Competitive Advantage

Entrepreneurs who take calculated risks often gain a competitive edge in the market. By identifying and pursuing opportunities that others may overlook or consider too risky, entrepreneurs can differentiate themselves from competitors. Risk taking allows entrepreneurs to seize new markets, explore untapped niches, and position their businesses uniquely, giving them a competitive advantage and increasing their chances of long-term success.

3. Learning and Adaptability

Risk-taking in entrepreneurship provides valuable learning experiences. Even if a venture does not succeed, the lessons learned from taking risks contribute to personal growth and professional development. Risk takers develop resilience, adaptability, and problem-solving skills, which are essential for navigating the challenges of entrepreneurship and seizing future opportunities. By embracing risk, entrepreneurs learn to manage uncertainty, make informed decisions, and adjust their strategies based on market feedback and changing circumstances.

4. Overcoming the Fear of Failure

Fear of failure is a common psychological barrier for entrepreneurs. However, taking risks allows entrepreneurs to confront and overcome this fear. By acknowledging that failure is a possibility, entrepreneurs can adopt a growth mindset and view failures as valuable learning experiences rather than insurmountable obstacles. Risk taking helps entrepreneurs build resilience, persistence, and the ability to bounce back from setbacks, which are vital qualities for long-term success.

Risk-Taking Entrepreneur Examples:

Elon Musk, the visionary founder of Tesla, SpaceX, and other ventures, is renowned for his risk-taking mentality. Musk has consistently taken on high-risk ventures, investing billions of dollars into industries such as electric vehicles and space exploration. Despite facing numerous challenges and skeptics, Musk's risk-taking approach has led to significant advancements in both industries, establishing him as a prominent figure in the entrepreneurial world. 

Sara Blakely

Sara Blakely, the founder of Spanx, is another example of a risk-taking entrepreneur. Blakely took a leap of faith by investing her life savings to launch her innovative shapewear product. She faced multiple rejections before securing a deal with a major retailer, but her persistence and willingness to take risks paid off. Today, Spanx is a globally recognized brand, and Blakely is a self-made billionaire.

Richard Branson

Richard Branson, the founder of the Virgin Group, is known for his adventurous and risk-taking spirit. Branson has built a vast empire spanning various industries, including music, travel, and telecommunications. Throughout his career, he has taken bold risks and pursued ventures that others deemed too risky or unconventional. Branson's willingness to take calculated risks has not only led to his personal success but has also positioned the Virgin brand as a symbol of innovation and adventure.

Jeff Bezos, the founder of Amazon, is known for his bold and risk-taking strategies. In the early days of Amazon, Bezos expanded the company's offerings from books to a wide range of products, despite doubts about the profitability of online retail. This risk paid off, and Amazon became a dominant force in e-commerce, revolutionizing the retail industry.

Risks of Being an Entrepreneur:

1. financial insecurity.

Entrepreneurs often face financial risks, as they invest their own capital or secure funding for their ventures. Business failures or unexpected expenses can lead to financial instability or even bankruptcy. Entrepreneurs must be prepared to handle financial challenges and have contingency plans in place to ensure the sustainability of their businesses.

2. Work-Life Imbalance

Running a business requires significant time and effort, often resulting in a work-life imbalance for entrepreneurs. The pressure to succeed, long working hours, and constant decision-making can take a toll on personal relationships and well-being. It is crucial for entrepreneurs to prioritize self-care, set boundaries, and delegate tasks to maintain a healthy work-life balance.

3. Uncertainty and Stress

Entrepreneurship is inherently uncertain, and entrepreneurs must operate in an environment where outcomes are not guaranteed. The stress of managing risks, making crucial decisions, and dealing with unforeseen obstacles can be overwhelming. Entrepreneurs must develop effective stress management techniques, build a support network, and cultivate resilience to navigate through challenging times.

4. Fear of Failure

The fear of failure can be a significant psychological barrier for entrepreneurs. The potential for business setbacks or not meeting expectations can lead to self-doubt and hesitation. Overcoming the fear of failure is essential for entrepreneurs to take calculated risks, pursue innovative ideas, and maintain a growth-oriented mindset.

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Conclusion:.

In conclusion, entrepreneurs should take risks, but that doesn't mean they should be careless risk-takers. Instead, entrepreneurship involves embracing uncertainty, making calculated decisions, and taking bold actions to drive innovation, gain a competitive advantage, and foster personal growth.

Entrepreneurs must be aware of the potential risks they face, including financial insecurity, work-life imbalance, uncertainty, and the fear of failure. By understanding and managing these risks effectively, aspiring entrepreneurs can embark on their entrepreneurial journey with confidence, resilience, and the ability to seize opportunities that lead to success.

Mark is a college graduate with Honours in Copywriting. He is the Content Marketing Manager at Nexford, creating engaging, thought-provoking, and action-oriented content.

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Risks in Entrepreneurship: Everything You Need to Know

• Key Takeaways

According to a study by the Global Entrepreneurship Monitor (GEM), 69% of entrepreneurs worldwide believe that managing risk is a critical skill for success in entrepreneurship.

The Small Business Administration (SBA) reports that 20% of new businesses fail within their first two years due to financial mismanagement and inadequate risk planning.

The Harvard Business Review states that companies that effectively manage reputation risks can experience up to a 33% increase in market value over time.

Entrepreneurial success hinges on understanding and effectively managing various types of risks, from financial to market and operational risks.

Entrepreneurs must prioritize reputation management, adapt to market fluctuations, and make informed decisions to navigate the challenges and uncertainties of entrepreneurship successfully.

Entrepreneurship, the art of turning innovative ideas into thriving businesses, is a dynamic journey filled with opportunities and challenges. At its core, entrepreneurship is about creating something new, taking calculated risks, and navigating uncharted waters. One crucial aspect that underpins this entrepreneurial voyage is the concept of risk. Risk in entrepreneurship is the uncertainty that looms over every decision, the unpredictability that accompanies each investment, and the potential rewards that lie on the other side of the coin. In this article, we will delve deep into the world of entrepreneurship and explore the multifaceted nature of risk that entrepreneurs face.

Entrepreneurial risk is not a single, monolithic entity but a complex tapestry woven from various threads. It encompasses financial uncertainties, market volatility, operational challenges, and the ever-present risk to one’s reputation and brand. Understanding these risks and how to manage them effectively is not just a crucial skill for entrepreneurs; it is the lifeblood of any successful venture. Throughout this article, we will dissect the different dimensions of entrepreneurial risk, shed light on strategies for mitigation, and share inspiring stories of entrepreneurs who have not only embraced risk but have used it as a stepping stone to success.

In a world where innovation and disruption have become synonymous with entrepreneurship, the ability to navigate risk has never been more critical. Whether you are a seasoned entrepreneur looking to sharpen your risk management skills or someone contemplating their first entrepreneurial leap, this article will serve as a comprehensive guide to the nuanced and often challenging world of risk in entrepreneurship.

Introduction to Risks in Entrepreneurship

• Defining Entrepreneurship

Entrepreneurship is a term often heard and celebrated in the business world, but what exactly does it mean? At its core, entrepreneurship is the act of identifying opportunities and taking calculated risks to create and grow businesses. 

Entrepreneurs are individuals who possess the vision, creativity, and determination to turn their innovative ideas into viable ventures. They embrace uncertainty, challenge the status quo, and endeavor to provide innovative solutions to societal needs. Understanding the essence of entrepreneurship is the first step in comprehending the significance of risk in this dynamic field.

• The Role of Risk in Entrepreneurship

Risk is an inseparable companion of entrepreneurship. It is the element that makes entrepreneurship an exhilarating yet challenging journey. In the context of entrepreneurship, risk refers to the potential for unfavorable outcomes, including financial losses, business failure, or personal setbacks. Entrepreneurs willingly accept these uncertainties because they believe in the potential rewards that their ventures can yield. 

Whether it’s launching a startup, expanding an existing business, or venturing into a new market, entrepreneurs encounter and manage various types of risks. These risks can be financial, market-related, operational, or even reputational, but they are all integral to the entrepreneurial experience.

• The Importance of Understanding Entrepreneurial Risk

For aspiring entrepreneurs and established business owners alike, understanding the concept of entrepreneurial risk is crucial. It goes beyond acknowledging that risk exists; it involves comprehending the nature of risks, identifying their sources, and learning how to manage and mitigate them effectively. 

A thorough understanding of risk empowers entrepreneurs to make informed decisions, allocate resources wisely, and chart a course for their businesses’ success. Without this awareness, entrepreneurs may find themselves ill-prepared to navigate the challenges that inevitably arise in the business world. Therefore, delving deeper into the world of entrepreneurial risk is not just a choice—it’s a necessity for those who aspire to thrive in the ever-evolving landscape of entrepreneurship.

Understanding Entrepreneurial Risk

Entrepreneurial ventures are known for their inherent uncertainties and challenges. To navigate this complex landscape, it’s essential to gain a thorough understanding of entrepreneurial risk.

• Defining Entrepreneurial Risk

Entrepreneurial risk can be defined as the possibility of adverse outcomes or losses associated with starting, operating, or expanding a business. It encompasses a wide range of uncertainties that entrepreneurs face throughout their journey. These uncertainties can be financial, operational, market-related, or reputational in nature. Understanding the concept of entrepreneurial risk is the first step in effectively managing it.

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• Types of Risks in Entrepreneurship

Entrepreneurship is riddled with various types of risks, each with its unique characteristics and implications. These include financial risks, market risks, operational risks, and reputational risks, to name a few.

• Financial risks pertain to challenges related to funding, cash flow, and profitability.
• Market risks revolve around factors like demand fluctuations and competition.
• Operational risks involve issues within the business’s day-to-day operations, such as supply chain disruptions.
• Reputational risks concern the potential harm to a company’s image and brand. Identifying these categories is crucial for entrepreneurs to tackle specific challenges effectively.
• Inherent Nature of Risk in Entrepreneurship

Risk is an inherent aspect of entrepreneurship. Entrepreneurs embark on ventures with limited information, facing uncertain outcomes, and often making decisions with incomplete data. This inherent nature of risk is what sets entrepreneurship apart from other forms of business. Entrepreneurs embrace uncertainty and leverage it as an opportunity for growth. They understand that calculated risks can lead to innovation, market disruption, and significant rewards.

• Historical Examples of Entrepreneurial Risk

Throughout history, countless entrepreneurs have taken bold risks that reshaped industries and economies. For instance, the Wright brothers risked their lives and finances to pioneer powered flight. Steve Jobs and Steve Wozniak started Apple Computer in a garage, taking a significant gamble on personal computing. These historical examples illustrate how calculated risks, determination, and innovation can lead to groundbreaking success.

• Common Misconceptions about Entrepreneurial Risk

Entrepreneurial risk often carries misconceptions that can deter aspiring entrepreneurs. One common misconception is that risk must be completely eliminated for a business to succeed.

In reality, risk can only be managed and minimized, not eradicated entirely. Another misconception is that successful entrepreneurs are fearless risk-takers.

While they do take risks, successful entrepreneurs also conduct thorough risk assessments and plan accordingly.

Understanding and dispelling these misconceptions is crucial for individuals contemplating entrepreneurship, as it can help them make informed decisions and navigate the path with confidence.

Importance of Risk Assessment

Entrepreneurship inherently involves risk, making it vital for entrepreneurs to assess and manage potential challenges effectively. Risk assessment is a fundamental step in this process, and here’s why it matters:

• Why Risk Assessment Matters

Risk assessment matters because it allows entrepreneurs to identify and understand the potential pitfalls and uncertainties that lie ahead. By acknowledging the risks involved, entrepreneurs can make informed decisions and develop strategies to mitigate them. This proactive approach not only reduces the chances of failure but also enhances the chances of achieving business success. It ensures that entrepreneurs enter the market with their eyes wide open, fully aware of the challenges they may encounter.

• Incorporating Risk Assessment into Decision-Making

Incorporating risk assessment into decision-making is crucial for sound entrepreneurship. Entrepreneurs often face critical choices, such as market entry, product development, or investment decisions. By evaluating the associated risks, entrepreneurs can make strategic choices that align with their risk tolerance and long-term goals. This integration of risk assessment into decision-making creates a structured and calculated approach to entrepreneurship, increasing the likelihood of positive outcomes.

• Tools and Techniques for Risk Assessment

To perform effective risk assessment, entrepreneurs can utilize various tools and techniques. These include SWOT analysis (Strengths, Weaknesses, Opportunities, Threats), risk matrices, scenario analysis, and industry benchmarking. These tools provide valuable insights into the potential risks and help entrepreneurs prioritize and address them accordingly. Additionally, specialized software and risk management consultants can aid in the comprehensive evaluation of risks.

• Avoiding Analysis Paralysis: Finding the Right Balance

While risk assessment is crucial, it’s essential to strike a balance and avoid analysis paralysis. Overanalyzing every potential risk can lead to indecision and missed opportunities. Entrepreneurs must find the right equilibrium between thorough risk assessment and timely decision-making. This requires a combination of data-driven analysis, intuition, and adaptability. By doing so, entrepreneurs can confidently tackle risks while maintaining agility in a dynamic business environment.

Mitigating Entrepreneurial Risks

Entrepreneurship inherently involves risks, but successful entrepreneurs understand the importance of mitigating these risks effectively. Here, we delve into various strategies and approaches that can help mitigate entrepreneurial risks.

• Strategies for Mitigating Risks

One of the first steps in risk management for entrepreneurs is identifying potential risks. These risks can range from market volatility to financial instability.

Once identified, entrepreneurs can develop strategies to address and mitigate them.

Strategies may include diversifying product lines, expanding into new markets, or forming strategic partnerships to share risks. By proactively addressing these risks, entrepreneurs can reduce their impact and increase the chances of business success.

• The Role of Comprehensive Business Planning

Comprehensive business planning is a cornerstone of risk mitigation in entrepreneurship. A well-thought-out business plan not only outlines the company’s goals and objectives but also includes a detailed risk assessment. Entrepreneurs can anticipate potential challenges and devise contingency plans within their business plans. This proactive approach helps entrepreneurs stay prepared for unforeseen circumstances and navigate risks with greater confidence. A solid business plan can also attract investors who appreciate a thoughtful approach to risk management.

• Building Resilience through Contingency Planning

Contingency planning is essential for dealing with unexpected disruptions or crises. Entrepreneurs should develop contingency plans that outline steps to be taken in response to various risk scenarios. This could include identifying alternative suppliers, creating emergency cash reserves, or having a crisis communication strategy in place. Building resilience through contingency planning ensures that the business can adapt and recover swiftly when faced with adversity, minimizing potential damage.

• Leveraging Insurance and Risk Transfer

Insurance is a powerful tool for transferring certain types of risks away from the entrepreneur. Whether it’s health insurance for the entrepreneur themselves or business insurance to cover liabilities and property, having appropriate coverage can provide peace of mind. Entrepreneurs should work with insurance professionals to tailor policies to their specific needs. By transferring certain risks to insurance companies, entrepreneurs can protect their personal and business assets.

• Learning from Failure: A Valuable Risk Mitigation Approach

Failure is an inevitable part of entrepreneurship, but it can also be a valuable teacher. Entrepreneurs who embrace failure as an opportunity to learn and grow are better equipped to mitigate future risks. Analyzing past failures can uncover valuable insights, such as where strategies went wrong or how risks could have been better managed. Learning from failure also fosters a resilient mindset, making entrepreneurs more adaptable and better prepared to face challenges in the future.

Calculating Risk vs. Reward

Entrepreneurship inherently involves a delicate balance between risk and reward. To make informed decisions, entrepreneurs must consider the potential benefits in relation to the risks they are taking. This section will delve into various aspects of this critical aspect of entrepreneurship.

• Understanding Risk-Reward Trade-offs

In entrepreneurship, risk and reward are intrinsically linked. Understanding this trade-off is essential. Every business decision carries a certain level of risk, whether it’s entering a new market, launching a product, or securing funding. Entrepreneurs must assess the level of risk they are comfortable with in pursuit of their business goals. A higher level of risk often comes with the potential for greater rewards, but it also increases the likelihood of failure. Conversely, a more cautious approach may yield smaller rewards but provides a safety net. It’s crucial for entrepreneurs to have a clear understanding of this trade-off when making strategic choices.

• Evaluating Potential Rewards

To navigate the risk-reward equation effectively, entrepreneurs must evaluate the potential rewards associated with their endeavors. This involves considering both quantitative and qualitative factors. Quantitative analysis may include financial projections, market potential, and return on investment calculations. Qualitative aspects encompass factors like personal fulfillment, brand reputation, and market positioning. Successful entrepreneurs meticulously assess these elements to determine if the potential rewards align with their business objectives.

• 5.3. Finding the Right Balance for Your Business

One of the key challenges in entrepreneurship is finding the right balance between risk and reward tailored to the unique characteristics of your business. It’s not a one-size-fits-all approach. Factors such as industry, market dynamics, and personal risk tolerance play a significant role. Entrepreneurs must continually evaluate their risk-taking strategies, adapting them as their businesses evolve. This ongoing assessment ensures that the risk-reward balance remains aligned with the company’s objectives.

• 5.4. The Psychology of Risk and Reward in Entrepreneurship

Understanding the psychology behind risk and reward is a crucial aspect of entrepreneurial decision-making. Entrepreneurs often grapple with fear, uncertainty, and the fear of failure. Overcoming these psychological barriers is essential for taking calculated risks. Cognitive biases can cloud judgment, leading to overly conservative or excessively risky choices. By acknowledging these biases and seeking rational decision-making processes, entrepreneurs can make more informed choices, better balancing risk and reward.

Financial Risks in Entrepreneurship

Entrepreneurship, while full of opportunities, is also fraught with financial risks that can make or break a business venture. Understanding and effectively managing these risks is crucial for the success and sustainability of any entrepreneurial endeavor.

• 6.1. Identifying Financial Risks

The first step in mitigating financial risks is to identify them. Financial risks in entrepreneurship can encompass a wide range of challenges, including but not limited to market volatility, unexpected expenses, fluctuating revenue streams, and debt obligations. Entrepreneurs must conduct a comprehensive analysis of their business model and financial statements to pinpoint potential vulnerabilities.

• 6.2. Managing Cash Flow Risks

Cash flow is the lifeblood of any business, and managing it effectively is paramount. Cash flow risks can arise from delayed payments, unexpected expenses, or seasonal fluctuations in revenue. Entrepreneurs should develop robust cash flow management strategies, including creating cash reserves, optimizing billing and payment processes, and exploring lines of credit to bridge cash flow gaps during lean periods.

• 6.3. Securing Funding and Capital

Access to adequate funding and capital is a critical aspect of financial risk management. Entrepreneurs must explore various funding sources, such as venture capital, angel investors, loans, or crowdfunding, depending on their business model and growth plans. Securing funding not only provides a financial cushion but also helps in strategic expansion and innovation.

• 6.4. Navigating Economic Downturns

Economic downturns are inevitable in the business world, and they pose significant financial risks to entrepreneurs. During challenging economic times, businesses may experience reduced consumer spending, increased competition, and tighter credit markets. Entrepreneurial resilience is tested when navigating these downturns. Effective risk management involves contingency planning, diversification of revenue streams, and a focus on customer value and cost optimization.

• 6.5. Success Stories: Triumph Over Financial Challenges

Despite the financial risks in entrepreneurship, success stories abound where entrepreneurs have not only survived but thrived in the face of adversity. These stories serve as inspirations and valuable lessons. Entrepreneurs who have triumphed over financial challenges often credit their success to strategic decision-making, adaptability, and unwavering determination. These stories underscore the importance of resilience and creative problem-solving in overcoming financial obstacles.

7. Market Risks

Entrepreneurs operating in today’s dynamic business environment often encounter various market risks that can impact the success of their ventures. Understanding and effectively managing these risks is crucial for sustaining and growing a business. In this section, we will delve into the key aspects of market risks.

• 7.1. Understanding Market Risks

Market risks encompass a range of factors that entrepreneurs must grapple with. These risks can include changes in consumer preferences, shifts in demand for products or services, competitive pressures, and economic fluctuations. To effectively manage market risks, entrepreneurs need a deep understanding of their target market, including its size, demographics, trends, and potential disruptors. By comprehending the intricacies of the market, entrepreneurs can anticipate challenges and opportunities.

• 7.2. Conducting Effective Market Research

One of the fundamental steps in mitigating market risks is conducting thorough market research. Entrepreneurs should invest time and resources in gathering data, analyzing market trends, and identifying their target audience. Market research allows entrepreneurs to assess demand, identify competitors, and uncover niche opportunities. By conducting effective market research, entrepreneurs can make informed decisions and adapt their strategies to suit the ever-changing market landscape.

• 7.3. Adapting to Market Fluctuations

Market fluctuations are inevitable, and entrepreneurs must be prepared to adapt. Successful entrepreneurs often employ flexibility in their business models to respond to changing market conditions. This might involve diversifying product lines, adjusting pricing strategies, or entering new markets. Being agile and responsive can help mitigate the adverse effects of market fluctuations and position a business for long-term success.

• 7.4. Case Studies: Entrepreneurs Navigating Market Risks

Examining real-life case studies of entrepreneurs who have successfully navigated market risks can provide valuable insights. These stories can illustrate how entrepreneurs identified market risks, made strategic adjustments, and ultimately thrived despite challenges. By learning from the experiences of others, aspiring entrepreneurs can gain practical knowledge and inspiration for managing market risks.

• 7.5. The Impact of Technological Disruption on Market Risks

In today’s digital age, technological disruption plays a significant role in shaping market risks. Rapid advancements in technology can create opportunities for innovation but also pose threats to established business models. Entrepreneurs need to stay informed about emerging technologies that could impact their industries. By embracing technology and leveraging it to their advantage, entrepreneurs can proactively address market risks and remain competitive in an ever-evolving business landscape.

8. Operational Risks in Entrepreneurship

Operational risks are a critical aspect of entrepreneurship that every business owner must address to ensure the smooth functioning of their venture. These risks encompass a wide range of factors that can disrupt daily operations, impact profitability, and even threaten the very existence of a business. To effectively manage operational risks, entrepreneurs need to have a clear understanding of their nature and take proactive steps to mitigate them.

• 8.1. Identifying Operational Risks

The first step in managing operational risks is to identify them. These risks can include everything from equipment failures and workforce issues to regulatory changes and natural disasters. By conducting a comprehensive risk assessment, entrepreneurs can pinpoint potential vulnerabilities within their operations. This involves examining every aspect of the business, from production and logistics to marketing and customer service, to identify areas where risks may arise.

• 8.2. Streamlining Business Operations

Streamlining business operations is a key strategy for mitigating operational risks. By optimizing processes and workflows, entrepreneurs can reduce the likelihood of errors, delays, and inefficiencies that can lead to operational disruptions. This may involve implementing automation, improving communication among teams, and investing in technology that enhances efficiency. A well-structured and efficient operation is better equipped to adapt to unexpected challenges and minimize their impact.

• 8.3. Ensuring Supply Chain Resilience

Supply chain disruptions can pose significant operational risks for businesses, particularly those that rely on a complex network of suppliers and distributors. Entrepreneurs should assess their supply chains and work to build resilience. This includes diversifying suppliers, maintaining safety stock, and having contingency plans in place for any supply chain interruptions. The COVID-19 pandemic highlighted the importance of supply chain resilience as businesses worldwide faced disruptions.

• 8.4. Lessons from Crisis Management

Crisis management is a valuable skill for entrepreneurs when dealing with operational risks. Learning from past crises and incidents can provide insights into how to respond effectively when similar challenges arise in the future. Analyzing case studies and seeking guidance from experts can help entrepreneurs develop crisis management strategies that enable them to navigate operational disruptions with agility and confidence.

• 8.5. Operational Excellence as a Risk Reduction Strategy

Operational excellence goes beyond efficiency; it involves a commitment to continuous improvement and a culture of excellence throughout the organization. By instilling a mindset of operational excellence, entrepreneurs can reduce the likelihood of operational risks and enhance their ability to adapt to changing circumstances. This approach involves ongoing training, quality control measures, and a focus on innovation to stay ahead of potential challenges.

9. Reputation and Brand Risks

Reputation and brand are invaluable assets for any business, often playing a crucial role in attracting customers and maintaining trust. In the world of entrepreneurship, understanding the significance of reputation and brand is paramount.

• 9.1. The Value of Reputation and Brand

Your reputation and brand define how customers perceive your business. A strong reputation can lead to customer loyalty, positive word-of-mouth marketing, and increased credibility. Likewise, a well-crafted brand can set you apart from competitors, making your products or services more appealing to your target audience. In essence, reputation and brand serve as the foundation upon which customer relationships are built.

• 9.2. Risks to Reputation in the Digital Age

In today’s digital age, where information spreads rapidly through online platforms, reputation risks have become more prevalent. Negative customer reviews, social media controversies, and public scandals can tarnish your brand’s reputation almost instantly. It’s essential for entrepreneurs to be aware of these risks and monitor their online presence closely. Any lapse in managing online reputation can have severe consequences.

• 9.3. Proactive Reputation Management

To mitigate reputation risks, proactive reputation management is critical. This involves monitoring online mentions of your brand, engaging with customers on social media, and promptly addressing any negative feedback or issues. Entrepreneurs can also create a crisis management plan to respond effectively in case of a reputational crisis, demonstrating transparency and a commitment to resolving problems.

• 9.4. Recovering from Reputational Damage

Despite best efforts, reputational damage can occur. How entrepreneurs respond to such situations is crucial. Acknowledging mistakes, taking responsibility, and making amends are essential steps in the recovery process. Rebuilding trust may take time, but it’s possible through consistent, positive actions that demonstrate your commitment to addressing the issues that led to reputational damage.

• 9.5. Successful Brand Building and Risk Mitigation

Successful brand building involves not only creating a compelling brand identity but also implementing risk mitigation strategies. Entrepreneurs should invest in building a brand that reflects their values and resonates with their target audience. By doing so, they can reduce the likelihood of brand risks and foster customer loyalty.

• 10. Conclusion

In the world of entrepreneurship, risk is not a hurdle to be avoided but a challenge to be embraced. It is the driving force behind innovation, the catalyst for growth, and the bedrock of every successful business venture. As we conclude our exploration into the intricate landscape of risk in entrepreneurship, it becomes clear that risk is not the enemy; it is the ally of those who dare to dream, innovate, and create.

To thrive in the world of entrepreneurship, one must not merely accept risk but also master the art of risk management. It involves assessing potential pitfalls, developing contingency plans, and making informed decisions that strike a delicate balance between risk and reward. Entrepreneurs who can navigate these treacherous waters with skill and determination often emerge as industry leaders, leaving a trail of innovation and success in their wake.

In closing, we encourage aspiring and seasoned entrepreneurs alike to view risk as an opportunity rather than a hindrance. By understanding the various facets of entrepreneurial risk, embracing calculated risks, and continuously learning from both successes and setbacks, you can embark on a journey that not only shapes your business but also defines your legacy in the ever-evolving world of entrepreneurship. Remember, in the face of risk, greatness is often born.

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• Q1: What is entrepreneurial risk?

Entrepreneurial risk is the uncertainty and potential negative outcomes associated with starting and running a business. It encompasses financial, market, and operational risks, among others, and is inherent in entrepreneurship.

• Q2: How can entrepreneurs mitigate risks?

Entrepreneurs can mitigate risks by conducting thorough risk assessments, creating comprehensive business plans, having contingency strategies in place, and seeking insurance coverage for certain risks.

• Q3: Why is understanding market risk crucial?

Market risk is essential to grasp because it affects a business’s potential for success. By researching market trends and customer behavior, entrepreneurs can adapt their strategies to minimize market-related risks.

• Q4: What role does reputation play in risk management?

A solid reputation is a shield against reputation risks. Entrepreneurs must actively manage their brand image, engage with customers, and respond effectively to crises to safeguard their reputation.

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How They Became Successful Entrepreneurs

How do successful entrepreneurs manage risk in their ventures?

Entrepreneurship is inherently intertwined with risk. Successful entrepreneurs understand that embracing risk is essential for growth, but they also recognize the importance of managing it effectively. By assessing potential pitfalls and developing risk mitigation strategies, entrepreneurs can position their ventures for success. In this article, we delve into the strategies and mindset employed by accomplished entrepreneurs to manage risk in their ventures. By understanding these approaches and learning from their experiences, aspiring entrepreneurs can navigate uncertainties while making informed decisions to propel their ventures forward.

Conduct Thorough Market Research Successful entrepreneurs begin by conducting comprehensive market research. They gather data on industry trends, customer behavior, competition, and potential obstacles. This information helps them assess the market’s viability and identify potential risks. By understanding the landscape, entrepreneurs can make informed decisions that minimize the impact of unforeseen challenges.

Develop a Solid Business Plan A well-structured business plan is a crucial tool for managing risk. Entrepreneurs who succeed create detailed plans that outline their business goals, strategies, and potential challenges. By mapping out their path, entrepreneurs can anticipate and address risks proactively, leading to better decision-making and resource allocation.

Diversify Revenue Streams Successful entrepreneurs mitigate risk by diversifying their revenue streams. Relying on a single source of income can leave a business vulnerable to market fluctuations. By expanding product offerings, targeting multiple customer segments, or exploring complementary services, entrepreneurs can create a buffer against potential revenue losses.

Build a Strong Team Entrepreneurs who excel at managing risk recognize the importance of a skilled and cohesive team. By hiring professionals with diverse expertise and a shared vision, entrepreneurs can collectively address challenges and make informed decisions. A strong team provides insights and support, reducing the impact of uncertainties.

Test and Validate Ideas Entrepreneurs mitigate risk by testing and validating their business ideas before full-scale implementation. They create prototypes or minimum viable products and gather feedback from potential customers. By identifying flaws or challenges early in the process, entrepreneurs can make necessary adjustments, saving resources and reducing the risk of failure.

Secure Adequate Funding Adequate funding is essential for managing risk in entrepreneurship. Entrepreneurs who succeed secure enough capital to cover operational costs and unforeseen challenges. They also maintain financial reserves to navigate lean periods. By having a strong financial foundation, entrepreneurs can weather uncertainties without compromising their ventures’ stability.

Develop Contingency Plans Entrepreneurs who excel at managing risk develop contingency plans for potential setbacks. These plans outline alternative strategies in case of unexpected challenges, such as supply chain disruptions or shifts in market demand. By having a backup plan, entrepreneurs can respond swiftly and effectively to unforeseen circumstances.

Stay Agile and Adaptable Successful entrepreneurs embrace agility and adaptability as risk management strategies. They understand that markets evolve, and unexpected challenges may arise. By maintaining a flexible mindset and being open to pivoting when necessary, entrepreneurs can adjust their strategies to mitigate risks and seize new opportunities.

Continuously Monitor and Evaluate Managing risk is an ongoing process. Successful entrepreneurs continuously monitor their ventures’ performance, industry trends, and potential risks. They regularly evaluate their strategies and adjust them based on changing circumstances. By staying vigilant, entrepreneurs can proactively identify and address risks before they escalate.

Learn from Failure and Mistakes Entrepreneurs who navigate risk successfully view failures and mistakes as valuable learning experiences. They analyze the root causes of failures and use these insights to refine their strategies. By learning from setbacks, entrepreneurs build resilience and make informed decisions that minimize the likelihood of repeating similar errors.

Managing risk is a critical skill for entrepreneurial success. By conducting thorough market research, developing solid business plans, diversifying revenue streams, building strong teams, testing and validating ideas, securing funding, developing contingency plans, embracing agility, continuously monitoring and evaluating, and learning from failures, entrepreneurs can navigate uncertainties while making informed decisions that position their ventures for growth. By adopting these strategies and maintaining a proactive mindset, aspiring entrepreneurs can effectively manage risk and create resilient businesses in a dynamic and ever-changing business landscape.

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How Can Entrepreneurs Manage Risk?

Last Updated:  

September 20, 2023

Entrepreneurship generally involves a certain level of risk-taking. All things considered, entrepreneurs comprehend that they should go out on a limb in a quest for potential profits. They understand that so as to accomplish their strategic plan, some level of risk-taking is essential.

Businesses of all sizes tackle risks in regards to the advancement of products, metal fabrication , fabricating them, selling them, gaining a profit on these operations, and overseeing development. In the event that the entrepreneur is a sole proprietor, she faces extra personal obligation risks and budgetary risks from ensuring business loans. Risk management strategies incorporate risk decrease, risk transfer, and risk avoidance. An entrepreneur can apply these procedures to the business and personal risk she faces.

Risk management is frequently thought of as the mitigation of uncertainty in the market, including angles, for example, buyer behaviour and the response of competitors. While entrepreneurs ought to plainly endeavour to anticipate or maintain a strategic distance from certain risks, they ought to likewise recollect that some risk is inevitable, vital, and — when well-managed — beneficial over the long haul.

First-time startup pioneers and progressively seasoned entrepreneurs must build up a mindset for risk management. Here are a few recommendations for drawing nearer and reducing unpredictable variables in the business.

Key Takeaways on How Entrepreneurs Can Manage Risk:

• Understanding the Nature of Entrepreneurship: Entrepreneurship inherently involves risk-taking. Entrepreneurs must embrace some level of risk to pursue potential rewards and achieve their business objectives.
• Weighing the Risk: Before taking a risk, entrepreneurs should carefully weigh it to minimise future losses. It involves having backup plans in case the primary plan fails, thereby making the business more sustainable.
• Learning to Plan and Forecast Risks: Entrepreneurs should not be caught off guard by failures. They need to extensively plan and forecast potential risks to reduce their impacts. For instance, investing in cybersecurity technology can help in protecting the business from data breaches. Running practical exercises like red teaming and white-hat testing can identify potential risks and weaknesses in the business.
• Pursuing New Opportunities: Entrepreneurs often have the knack for identifying gaps in the market and finding solutions to address them. While seizing new opportunities involves risks, it can also offer substantial rewards, especially if the solution is viable and leverages the first-mover advantage.
• Reducing Financial Risks: Managing accounts receivable to minimise outstanding balances and identifying poor credit risks early on can help in reducing financial risks. Implementing credit and payment standards and monitoring growth rate to maintain it at a manageable level are essential strategies in risk management.
• Insurance as a Risk Management Tool: Transferring risks to insurance companies by securing against potential liabilities, disabilities, and injuries can be a vital strategy. Insuring various raw materials and processes can reduce losses in case of business or plan failures.

Entrepreneurs should approach risk management with a proactive mindset, understanding that while some risks are unavoidable, they can be beneficial in the long run if well-managed. It involves a strategic approach to planning, forecasting, and mitigating risks, ensuring the business remains sustainable and prepared for various challenges. It is essential to develop a risk management mindset to navigate unpredictable variables successfully in the business landscape.

Weighing The Risk

An entrepreneur needs to gauge a risk before he takes one to minimise future misfortunes. Most entrepreneurs specialise in gauging the risk-if the plan comes up short, they don't lose much however in the case that it works, they remain to pick up a great deal by going out on a limb. Likewise, one needs back-ups in the event that their thought falls flat. Consequently, through straightforward ways, they make their business increasingly reasonable and economical.

Learn To Plan And Forecast The Risk

Let the disappointment not come as amazement. You have to plan broadly about everything-the thought, marketing procedures, back-ups and the post-success plan. On the off chance that you manage to forecast a risk superbly, you get an opportunity to lessen it. Additionally, on the grounds that you are ready to forecast risk, you can fabricate a risk management methodology to lessen its effects.  An example of a business operations area under increased risk is cyber security. All entrepreneurs should do their due diligence and invest in cybersecurity technology and controls to protect their businesses from data breaches. Forecasting a data breach can be a theoretical exercise, but if a business owner takes the time to strategise and plan for it, they can help protect their business from potential losses. Running practical exercises like red teaming and white-hat testing can help determine any potential risks and weaknesses in the business, this is known as a Red Teaming Assessment . This type of forecasting can be applied to various types of business risk areas and aims to prepare the organisation for the realisation of business risk. 

Pursuing A New Opportunity

Entrepreneurs regularly have the skill of spotting out deficiencies in the market and discovering answers for the issue. Pressing together a new opportunity is a potential risk yet on the off chance that their answer is reasonable, entrepreneurs stand the opportunity to pick up a great deal from it. Additionally, first mover advantage is the thing that drives them to improve further.

Reduce Financial Risks

Reducing money related risk by dealing with your records receivable to minimise exceptional adjusts and recognise poor credit risks from the get-go in your business is the way to risk management. To diminish budgetary risks further, one can execute credit and instalment benchmarks, indicating which credit scores and instalment records are worthy. Have a go at downplaying extraordinary loans and financing needs. It is imperative to screen development rate and let the company develop to a degree which is manageable.

Insurance Is The Key

Transfer the risks to insurance agencies by securing them against the damaged liabilities, incapacities and wounds. By protecting a wide range of crude materials and procedures, you stand an opportunity to lose less if there should be an occurrence of a business or a plan disappointment.

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How to manage risk as an entrepreneur

Starting your own business is full of exciting opportunities, but it also brings a certain level of risk. Entrepreneurship is a risky game, and it's essential to manage those risks if you want your business to succeed. Whether you're a seasoned entrepreneur or just starting out, understanding how to manage risk is crucial. In this article, we'll dive into the most common risks faced by entrepreneurs and provide practical tips and strategies for managing them. So, let's get started on this entrepreneurial journey and learn how to navigate the ups and downs with confidence.

Understanding the types of risk in entrepreneurship

As an entrepreneur, it's crucial to understand the different types of risks that come with starting and running a business . There are several categories of risks that entrepreneurs face, including financial, operational, legal, market and industry, and reputational risks, to name a few. Each type of risk presents unique challenges and requires a tailored approach to mitigate.

Understanding the different types of risk will help you prioritize and focus your risk management efforts more effectively. By taking the time to understand the types of risk in entrepreneurship, you can ensure that your business is equipped to handle any challenges that come your way.

Developing a risk management plan

A risk management plan is an essential tool for entrepreneurs to mitigate the risks associated with starting and running a business . It's a systematic approach to identifying, assessing, and controlling risks to minimize their impact on your business. Developing a risk management plan requires a thorough understanding of the types of risk you face and the potential impact they could have on your business.

The goal of the plan is to minimize the risk of harm to your business while maximizing the chances of success. A risk management plan should outline the steps you will take to identify, assess, and manage risks, as well as the people and resources involved in the process. By having a well-thought-out risk management plan in place, you can proactively address potential issues before they become major problems and ensure the long-term success of your business.

Conducting a risk assessment

Conducting a risk assessment is a critical step in the risk management process for entrepreneurs. It involves evaluating the likelihood and impact of potential risks on your business . A risk assessment helps you identify the areas where your business is most vulnerable and prioritize your risk management efforts. There are several methods for conducting a risk assessment, including brainstorming sessions, SWOT analysis, and decision trees.

The key is to use a systematic approach that covers all areas of your business and considers both internal and external factors. During a risk assessment, you'll consider the potential impact of each risk on your business, including financial, operational, legal, market, and reputational impacts. By conducting a comprehensive risk assessment, you can identify the risks that pose the greatest threat to your business and develop a plan to mitigate or manage them effectively.

Identifying potential risk factors

Identifying potential risk factors is an important step in the risk management process for entrepreneurs. It involves looking at all aspects of your business to identify potential risks that could impact its success. There are several ways to identify potential risk factors, including reviewing historical data, conducting market research , and seeking advice from industry experts. You should also consider internal factors, such as the capabilities of your team, the systems and processes in place, and the strength of your company culture.

It's essential to take a proactive approach to identifying potential risk factors, as this will help you to anticipate and mitigate risks before they have a significant impact on your business. By taking the time to identify potential risk factors, you can create a comprehensive risk management plan that addresses the most significant risks facing your business. This will help you to be better prepared to handle any challenges that come your way and ensure the long-term success of your business.

Minimizing financial risks

Minimizing financial risks is a key aspect of risk management for entrepreneurs. Financial risks can arise from a variety of sources, such as changes in market conditions, economic downturns, and unexpected expenses. These risks can have a significant impact on your business, affecting its cash flow and profitability. To minimize financial risks, it's important to have a solid understanding of your company's financial position, including its income and expenses, assets, and liabilities.

There are several strategies you can use to minimize financial risks, including:

Building an emergency fund: Having a cash reserve to fall back on can help you weather unexpected expenses and keep your business running smoothly.

Diversifying your revenue streams : Having multiple sources of income can help to reduce the impact of changes in market conditions or economic downturns.

Monitoring cash flow: Regularly monitoring your cash flow and making adjustments to your spending as needed can help you to avoid overspending and minimize financial risks.

Seeking advice from financial experts: Working with financial advisors and accountants can help you to make informed decisions about your finances and minimize financial risks.

By taking a proactive approach to minimizing financial risks, you can ensure the long-term financial stability of your business and increase the chances of success.

Protecting intellectual property

Protecting your intellectual property is an important part of risk management for entrepreneurs. Intellectual property refers to the creations of the mind, such as inventions, trademarks, trade secrets, and copyrights. These assets are valuable to your business and can help to differentiate you from your competitors. However, without proper protection, they can also be vulnerable to theft or infringement.

There are several strategies you can use to protect your intellectual property, including:

Trademarking your brand: Registering your trademark with the relevant authorities can help to protect your brand and prevent others from using it without your permission.

Securing patents: Securing patents for your inventions can prevent others from using your ideas without your permission.

Keeping trade secrets confidential: Implementing strict confidentiality agreements and security measures can help to protect sensitive information and keep your trade secrets confidential.

Monitoring for infringement: Regularly monitoring for infringement of your intellectual property can help you to identify and address any potential threats to your assets.

By taking steps to protect your intellectual property, you can secure the value of your assets and minimize the risk of infringement or theft. This will help to ensure the long-term success of your business.

Managing operational risks

Managing operational risks is a critical component of risk management for entrepreneurs. Operational risks refer to the risks associated with the day-to-day running of your business, such as supply chain disruptions, equipment failures, and cyber-attacks. These risks can have a significant impact on your business operations and profitability.

To manage operational risks effectively, it's important to take a systematic approach and consider all aspects of your business operations. There are several strategies you can use, including:

Conducting regular risk assessments: Regularly evaluating your operations and identifying potential risks can help you to anticipate and mitigate potential problems.

Implementing robust systems and processes: Implementing strong systems and processes can help to minimize the impact of operational disruptions and ensure the continued success of your business.

Securing your data and systems: Protecting your data and systems from cyber-attacks and other security threats is essential to minimize the risk of operational disruptions.

Building resilience into your supply chain: Building resilience into your supply chain by diversifying your suppliers and developing backup plans can help to minimize the impact of supply chain disruptions.

By effectively managing operational risks, you can minimize the potential impact of operational disruptions on your business and ensure its long-term success.

Dealing with legal risks

Dealing with legal risks is a crucial part of risk management for entrepreneurs. Legal risks refer to the potential for legal issues to arise, such as lawsuits, regulatory compliance issues, and contract disputes. These risks can have a significant impact on your business operations, finances, and reputation.

To deal with legal risks effectively, it's important to stay informed about the laws and regulations that apply to your business, and to take steps to mitigate potential legal issues. There are several strategies you can use, including:

Staying informed about laws and regulations: Keeping up-to-date with the laws and regulations that apply to your business can help you to identify and address potential legal risks.

Working with a lawyer: Having a lawyer on your team can help you to understand the legal implications of your business decisions and avoid potential legal issues.

Reviewing contracts: Carefully reviewing all contracts and agreements before entering into them can help you to avoid disputes and minimize legal risks.

Maintaining accurate records: Keeping accurate and complete records of your business transactions and activities can help to minimize the risk of legal issues arising.

By effectively dealing with legal risks, you can minimize the potential impact of legal issues on your business and ensure its long-term success.

Navigating market and industry risks

Navigating market and industry risks is an important part of risk management for entrepreneurs. Market and industry risks refer to the potential for changes in the market or industry to impact your business, such as changes in consumer preferences, competition, and economic conditions. These risks can have a significant impact on your business operations and profitability.

To navigate market and industry risks effectively, it's important to stay informed about trends and developments in your market and industry, and to be prepared to adapt to changes as they occur. There are several strategies you can use, including:

Monitoring market trends: Regularly monitoring market trends and consumer preferences can help you to anticipate changes and adapt your business accordingly.

Keeping an eye on the competition: Keeping a close eye on your competition and their strategies can help you to identify potential risks and opportunities.

Diversifying your offerings: Diversifying your offerings and markets can help to minimize the impact of changes in consumer preferences or economic conditions.

Being flexible and agile: Being flexible and agile in your business operations and strategies can help you to respond quickly and effectively to changes in the market or industry.

By effectively navigating market and industry risks, you can minimize the potential impact of changes on your business and ensure its long-term success.

Building a robust risk management culture

Building a robust risk management culture is a key aspect of risk management for entrepreneurs. A risk management culture is a company-wide mindset that prioritizes risk management and encourages all employees to identify and address potential risks.

Creating a strong risk management culture is important because it helps to ensure that risk management is integrated into all aspects of your business operations, and that all employees are aware of the importance of risk management and their role in it. There are several strategies you can use to build a robust risk management culture, including:

Leading by example: As the leader of your business, it's important to demonstrate a commitment to risk management and set the tone for your employees.

Communicating effectively: Communicating the importance of risk management to all employees, and providing them with the tools and training they need to identify and address risks, is essential.

Encouraging participation: Encouraging all employees to participate in the risk management process and to share their insights and ideas can help to build a strong risk management culture.

Celebrating successes: Recognizing and celebrating successes in risk management can help to reinforce the importance of risk management and motivate employees to continue to prioritize it.

By building a strong risk management culture, you can ensure that risk management is integrated into all aspects of your business operations, and that all employees are aware of the importance of risk management and their role in it.

Wrapping up

Managing risk is a critical part of being a successful entrepreneur. Entrepreneurs are faced with a range of risks, from financial and operational risks to market and industry risks, and legal risks. To manage these risks effectively, it's important to understand the types of risk you face, and to develop a comprehensive risk management plan.

A key component of risk management is conducting a risk assessment, which involves identifying potential risk factors and assessing their impact on your business. You should also prioritize minimizing financial risks and protecting your intellectual property, and be proactive in managing operational risks. Navigating market and industry risks requires staying informed about trends and developments in your market and industry, and being flexible and agile in your business operations.

Finally, building a robust risk management culture is an important part of managing risk effectively. A risk management culture is a company-wide mindset that prioritizes risk management and encourages all employees to identify and address potential risks. By building a strong risk management culture, you can ensure that risk management is integrated into all aspects of your business operations, and that all employees are aware of the importance of risk management and their role in it.

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11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

• 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
• 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
• 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
• 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
• 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
• 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
• 54 Foodstart. http://foodstart.com
• 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

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How to manage the risks of entrepreneurship

Launching a tech startup — or any startup at all — is a risky venture. According to the U.S. Bureau of Labor Statistics, nearly half of new businesses fail within their first five years. 1 There is no silver bullet to prevent a new business from failing, but you can better position your startup for success by identifying and mitigating key risks. Conducting market research, writing a business plan, maintaining financial discipline, and purchasing the right insurance can all help your business survive and thrive.

Primary risks of being an entrepreneur

When you start a business, you can build confidence by picturing success. You might imagine yourself launching a great product, attracting investors, closing deals, and acquiring customers. But to help make your dream a reality, it’s also a good idea to be aware of what could go wrong. If you identify major risks, you’ll be in a better position to take preventive action. Here are some key risks to consider:  

• Strategic and market risks  — Unfortunately, not every product is embraced by the marketplace. One common cause of start-up failure is that a product or service simply doesn’t solve a problem or meet a need, and therefore fails to attract customers. Even if your core product or service finds favor with customers, your business could fail due to competition or ineffective marketing.
• Financial risks  — Simply put, if your business runs out of money, you won’t be able to operate. Without sufficient cash on hand, you can’t pay employees, fund marketing, or cover your rent. You may be able to temporarily weather cash flow challenges by taking on debt, but this creates additional financial risk. 
• Operational risks  — You might have a great product and money in the bank, but your business can flounder for a range of operational reasons, including loss of a key employee, regulatory or compliance challenges, or an accident or disaster that damages inventory, equipment, or facilities.
• Technology risks  — Virtually every business depends on technology and therefore faces technology risks such as data breaches and ransomware. In addition, companies that manage customer data or handle payment processing also have special compliance requirements and face increased technology risks.

Actions that help mitigate startup risks

Once you identify your company’s most significant risks, determine which actions will help limit those risks. By focusing on risk, you may also be able to improve elements of your business’s strategy. Be realistic as well: It isn’t possible to eliminate all risks. Here are some steps to consider:  

• Write a business plan and follow it  — Creating a roadmap for your business at the outset can help you get where you want to go. Common elements of a business plan include a company description, market analysis, organizational structure, marketing and sales strategies, funding needs, and financial projections. You can use your business plan to measure where you’re on track and whether new risks are arising.
• Establishing good record-keeping practices so you can track all parts of your financial operations.
• Starting with sufficient funding and maintaining a cash reserve.
• Limiting debt and accounts receivable.
• Diversifying your business’s income.
• Create a robust cybersecurity program  — Establish and enforce cybersecurity policies for your new business, such as regularly updating and patching software, backing up data, and using two-factor authentication to sign into your company’s network. Make sure your company’s website, services, and operations follow applicable data privacy regulations. Provide cybersecurity training for your employees.
• Protect your intellectual property (IP)  — Depending on what your business does, you may want to take steps to protect your intellectual property assets, including your business name, logo, inventions, software, and even strategies and business plans. Protecting your IP helps prevent competitors, partners, and former employees from profiting from your business’s hard work and investments. Filing patents for inventions is a costly and time-consuming process, but it may be necessary to protect your business and attract investors. Other ways to protect IP include registering trademarks and copyrights, and using non-disclosure agreements with employees, partners, and contractors.
• Retain experts —  You may be able to manage many business risks on your own, but you may also benefit from turning to experts for additional help. An accountant can help establish sound financial practices; a cybersecurity professional can help your business limit cyber risks; and an attorney can help protect your IP assets.  

Insurable risks and coverage

Businesses can manage numerous risks by strengthening their operations and taking preventive actions. In addition, many risks can be mitigated with a strong insurance program. An independent broker or agent can help you identify insurable risks and determine what policies are right for your startup. Key policies to consider include:  

• Business owner’s policy (BOP) — Provides commercial general liability coverage and commercial property coverage.
• General liability  — Provides protection to your business and employees from claims of injury or damage by third parties.
• Commercial property  — Covers loss or damage to property and potential lost income due to fire, natural disasters, and certain other causes.
• Commercial auto  — Covers losses, injuries and damage resulting from accidents with vehicles used by your business.
• Workers compensation  — Pays lost wages, medical expenses, and rehabilitation costs for employees who are injured or become sick at work. This type of coverage is required in nearly every state.
• Employment practices  — Provides protection against claims arising from illegal employment practices, such as discrimination and harassment. 
• Directors & officers (D&O)  — Protects company leaders from certain lawsuits arising from their business decisions.
• Professional liability  — Helps cover financial losses arising when you or an employee makes a costly error or omission when providing professional services to clients.
• Cyber liability  — Helps your business recover from a cyber incident, such as a data breach or ransomware.

While you may not need all these coverages, some types of insurance may be required by lenders and customers.

Learn as you go

Every business takes risks — and makes mistakes. While a detailed business plan will help keep you on track, it’s important to be flexible as well. Be ready to take quick action to respond to emerging risks. Businesses sometimes must pivot rapidly in the face of setbacks — or to seize marketplace opportunities. In some cases, a successful pivot can be as important as a strong launch for a business to achieve long-term success.

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Insights & Resources

We keep you informed — and your business protected — with these helpful articles.

This document is advisory in nature and is offered as a resource to be used together with your professional insurance advisors in maintaining a loss prevention program. It is an overview only, and is not intended as a substitute for consultation with your insurance broker, or for legal, engineering or other professional advice.

Chubb is the marketing name used to refer to subsidiaries of Chubb Limited providing insurance and related services. For a list of these subsidiaries, please visit our website at  www.chubb.com . Insurance provided by ACE American Insurance Company and its U.S. based Chubb underwriting company affiliates. All products may not be available in all states. This communication contains product summaries only. Coverage is subject to the language of the policies as actually issued. Surplus lines insurance sold only through licensed surplus lines producers. Chubb, 202 Hall's Mill Road, Whitehouse Station, NJ 08889-1600.

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Starting A Business: How Entrepreneurs Handle Risk

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Do you dream of starting a business ? If you have the entrepreneurial spirit, you probably have some pretty big ideas of how you want your business to work, and where you see yourself in five or ten years. Having big dreams and goals is key to finding success in entrepreneurship; while there is a balance between being realistic and going after large goals, most entrepreneurs will tell you that you have to be willing to dream big and take huge risks to see your business take off. This does mean sometimes you will fail, but as an entrepreneur, failure is just part of the deal.

Famous entrepreneurs who took big risks.

There are many famous examples of entrepreneurs who took huge risks when starting a business. While not everyone can turn their entrepreneurial dreams into something as huge as Facebook, learning from these famous examples will help everyone understand how risk factors into starting any type of business in any industry.

Mark Zuckerberg

Mark Zuckerberg took on huge risks to create the Facebook, including dropping out of college, moving his business to busy and booming Silicon Valley, turning down buyout offers, and running the business the best he possibly could through his 20’s. Mark Zuckerberg still takes technology and marketing risks to further his business ideas, and sometimes they don’t pan out. In 2014, Zuckerberg invested heavily in a virtual reality platform called Oculus. While the platform still exists, it didn’t generate the buzz with Facebook users that it needed to generate revenue. While some called this a Zuckerberg mistake, the reality is that these huge risks are crucial to furthering a company and maintaining the entrepreneurial spirit needed to find success in business.

Elon Musk has faced plenty of ups and downs as he has worked to create Tesla. His huge risks have included putting up his own money to keep the company afloat, borrowing money from friends to pay his own rent, and being willing to buck traditional business practices to keep production working (many Tesla employees have done their fair share of time in the production factory, no matter where they were hired to work.) These huge risks, and the ongoing risks Elon Musk takes to keep building Tesla, have turned his net worth to over $16 million. As an added note, as of October 1st, 2018,  Musk has stepped down as chairman of Tesla amid fraud charges dealing with a Tweet about making Tesla public. It will be interesting to see where these continual risky moves take the company, and him.

Richard Branson

Richard Branson took a gigantic risk with the Sex Pistols in the 70’s, taking marketing efforts to an extreme by trolling the Queen of England’s silver jubilee event with a controversial song about the monarchy. This stunt went down in music history, and helped Branson build his record label to welcome other huge artists like The Rolling Stones, Tina Turner, and Mariah Carey. Had he been unwilling to take the giant risk, and face the reality that it could fail and get him into huge trouble, Branson wouldn’t be where he is today. He continues to take risks with investments, appearances, shows, and more, proving that his entrepreneurial spirit is still alive and well.

What is calculated risk?

While risk is crucial to entrepreneurship, the reality is that it’s not just taking huge leaps without considering the options that makes businesses work. Calculated risks are what make businesses succeed . The big difference between just taking a risk, and taking a calculated risk is the consideration that goes into it. Risk-takers don’t think about the escape route, the factors that make it risky, and what the situation will be if they fail. Entrepreneurs take calculated risks; they’re willing to “go big or go home” but they understand the consequences if they fail and have taken into account the likelihood that they’ll succeed.

What risks do entrepreneurs take?

There are five kinds of risk that entrepreneurs take as they begin starting their business. Those risks are: founder risk, product risk, market risk, competition risk, and sales execution risk.

• Founder risk considers who the founders of the company are, if they get along, and how they will work for the company.
• Product risk takes into account the engineers creating new product for the business and how they will recruit other product engineers.
• Market risk looks at the problem you’re solving with your product and how consumers will react.
• Competition risk looks at how you differ from other similar organizations and companies.
• Sales execution risk helps you look at how to sell your product to consumers by presenting them a solution to their problem.

All of these risks are crucial elements to preparing to start your own business. Being an entrepreneur means being willing to take a look at these risks, and decide if this calculated risk looks like a good idea for your organization. Then, being willing to take the leap.

Optimism is a distinguishing characteristic of risk takers.

In addition to being willing to take risks, the personality of entrepreneurs and risk-takers is crucial to the outcome of risk-taking. New studies indicate that optimism or positive feelings about luck and ability help risk-takers succeed. The more lucky a risk-taker believes they are, or the more they have optimism and confidence in their skills and abilities, the more likely they are to overcome the challenges associated with the risk they are taking.

How a business education fits in with starting a business.

Beyond calculated risk-taking, entrepreneurs can greatly benefit from a business education . Learning about finances, marketing, sales, and accounting can all help budding entrepreneurs get some of the savvy needed to understand how things work in the business world. A bachelor’s degree in business can be an ideal place to start learning about all the elements of business. After receiving a business bachelor’s degree , a master’s degree or MBA can be a good option to continue that business education. Entrepreneurs can greatly benefit from learning as much as possible from a university like WGU, and mixing their education with the ability to take calculated risks can be a recipe for success.

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What Risks Does an Entrepreneur Face?

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Most entrepreneurs are risk-takers by nature, or at minimum calculated visionaries with a clear plan of action to launch a new product or service to fill a gap in the industry. On a personal level, many entrepreneurs take big risks to leave stable jobs to throw their efforts (and sometimes their own money) into launching a business.

For entrepreneurs, there is no guaranteed monthly income, no guarantee of success, and spending time with family and friends can be a challenge in the early days of launching a company. Here are some of the most common risks that every entrepreneur and investor should evaluate and minimize before starting a business.

Key Takeaways

• Entrepreneurs face multiple risks such as bankruptcy, financial risk, competitive risks, environmental risks, reputational risks , and political and economic risks.
• Entrepreneurs must plan wisely in terms of budgeting and show investors that they are considering risks by creating a realistic business plan.
• Entrepreneurs should also consider technology changes as a risk factor.
• Market demand is unpredictable as consumer trends can change rapidly, creating problems for entrepreneurs.

An entrepreneur will need funds to launch a business either in the form of loans from investors, their own savings, or funds from family. The founder will have to put their own "skin in the game." Any new business should have a financial plan within the overall business plan showing income projections, how much cash will be required to break even, and the expected return for investors in the first five-year timeframe. Failure to accurately plan could mean that the entrepreneur risks bankruptcy, and investors get nothing.

Entrepreneurs face many risks when they launch a venture, and they should take measures to insure against those that are most likely to affect them.

An impressive business plan will appeal to investors . However, we live in a dynamic and fast-paced world where strategies can become outdated quickly. Changes in the market or the business environment can mean that a chosen strategy is the wrong one, and a company might struggle to reach its benchmarks and key performance indicators (KPIs). 

Technology Risk 

New technologies are constantly emerging, particularly in the era of the Fourth Industrial Revolution. Some of these changes are characterized as "paradigm shifts" or "disruptive" technologies. To be competitive, a new company may have to invest heavily in new systems and processes, which could drastically affect the bottom line.

Many factors can affect the market for a product or service. The ups and downs of the economy and new market trends pose a risk to new businesses, and a certain product might be popular one year but not the next. For example, if the economy slumps, people are less inclined to buy luxury products or nonessentials. If a competitor launches a similar product at a lower price, the competitor might steal market share. Entrepreneurs should perform a market analysis that assesses market factors, the demand for a product or service, and customer behavior.

Competitive Risk 

An entrepreneur should always be aware of its competitors. If there are no competitors at all, this could indicate that there is no demand for a product. If there are a few larger competitors, the market might be saturated , or, the company might struggle to compete. Additionally, entrepreneurs with new ideas and innovations should protect intellectual property by seeking patents to protect themselves from competitors.

A business's reputation is everything, and this can be particularly so when a new business is launched and customers have preconceived expectations. If a new company disappoints consumers in the initial stages, it may never gain traction. Social media plays a huge role in business reputation and word-of-mouth marketing. One tweet or negative post from a disgruntled customer can lead to huge losses in revenue. Reputational risk can be managed with a strategy that communicates product information and builds relationships with consumers and other stakeholders.

Environmental, Political, and Economic Risk 

Some things cannot be controlled by a good business plan or the right insurance . Earthquakes, tornadoes, hurricanes, wars, and recessions are all risks that companies and new entrepreneurs may face. There may be a strong market for a product in an under-developed country, but these countries can be unstable and unsafe, or logistics, tax rates, or tariffs might make trade difficult depending on the political climate at any point in time.

Also, some business sectors have historically high failure rates, and entrepreneurs in these sectors may find it difficult to find investors. These sectors include food service, retail, and consulting.

The percentage of small businesses launched in 2018 that made it to their third year, according to the Bureau of Labor Statistics.

The U.S. Bureau of Labor Statistics found that of the small businesses that were started in 2018, 81.3% made it to their second year (2019), and 65.4% made it to the third year (2020). Entrepreneurs should expect to make some mistakes, some of which will be costly. However, with the right planning, funding, and flexibility, businesses have a better chance of succeeding.

Bureau of Labor Statistics. " Table 7. Survival of Private Sector Establishments by Opening Year ."

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5 Entrepreneurship: Starting and Managing Your Own Business

Chapter 5: entrepreneurship: starting and managing your own business, introduction.

Learning Objectives

After reading this chapter, you should be able to answer these questions:

• Why do people become entrepreneurs, and what are the different types of entrepreneurs?
• What characteristics do successful entrepreneurs share?
• How do small businesses contribute to the U.S. economy?
• What are the first steps to take if you are starting your own business?
• Why does managing a small business present special challenges for the owner?
• What are the advantages and disadvantages facing owners of small businesses?
• How does the Small Business Administration help small businesses?
• What trends are shaping entrepreneurship and small-business ownership?

Exploring Business Careers

Natalie tessler, spa space.

Natalie Tessler has always had an entrepreneurial spirit. After she graduated from New York University’s law school, she began working as a tax attorney for a large firm in Chicago. But Tessler soon realized that this left her feeling unfulfilled. She didn’t want to practice law, and she didn’t want to work for someone else. “I wanted to wake up and be excited for my day,” Tessler said. Not until one night, though, when she was having dinner with a friend who recently had begun a writing career, did she realize it was time. “I was listening to her talk about how much she loved her job. Her passion and excitement—I wanted that. I wanted something that grabbed me and propelled me through the day—and being a lawyer wasn’t it.”

She began searching for what “it” was. She had a tremendous passion and talent for hospitality, entertaining others, and presentation. Seeking an outlet for that flair, she found the spa industry, and the idea for Spa Space was born.

“People think that, owning a spa, I’m able to live this glamorous lifestyle,” she laughs. “Owning a spa is nothing like going to one—my nails always are broken from fixing equipment; my back is usually in pain from sitting hunched over a computer trying to figure out the budget or our next marketing promotion.” Tessler is a true entrepreneur, embodying the spirit and drive necessary to see her vision become a reality.

Tessler wanted to design a spa that focused on something new: creating a comfortable, personalized environment of indulgence while not neglecting the medical technology of proper skin care. “My father’s a dermatologist, so we discussed the importance of making this more than a spa where you can get a frou-frou, smell-good treatment that might actually harm your skin. We both thought it was important to create an experience that is as beneficial for people’s skin as it is for their emotional well-being.” To address this need, Spa Space has a medical advisory board that helps with product selection, treatment design, and staff training.

Armed with a vision and a plan, Tessler turned her sights toward making it a reality. Spa Space opened in 2001 and has received a great deal of national recognition for its service excellence, unique treatments and products, and its fresh approach to appealing to both men and women. But it hasn’t always been smooth sailing for Spa Space. Tessler had to steer the business through several obstacles, including the 9/11 tragedy just three months after the spa’s grand opening, and then the Great Recession. Tessler learned to adapt her strategy by refining her target market and the services Spa Space offered. Her resiliency enabled the company to not only survive difficult economic periods, but to thrive and grow 17 years later into what the press recognizes as Chicago’s best spa.

Tessler recently turned the reins over to Ilana Alberico, another entrepreneur and founder of Innovative Spa Management, a company that has been named twice to Inc. magazine’s list of fastest growing companies. When Alberico met Natalie Tessler and learned about her vision, she was inspired to invest in Spa Space. “Natalie’s vision still resonates . . . I’m inspired to champion her vision into the future.”

Sources: “Our Team,” https://spaspace.com, accessed February 1, 2018; Jennifer Keishin Armstrong, “Spa Reviews: Spa Space in Chicago,” Day Spa magazine, http://www.dayspamagazine.com, accessed February 1, 2018; “About Us,” https://ismspa.com, accessed February 1, 2018.

Typical of many who catch the entrepreneurial bug, Natalie Tessler had a vision and pursued it single-mindedly. She is just one of thousands of entrepreneurs from all age groups and backgrounds. Even kids are starting businesses and high-tech firms. College graduates are shunning the corporate world to head out on their own. Downsized employees, midcareer executives, and retirees who have worked for others all their lives are forming the companies they have always wanted to own.

Companies started by entrepreneurs and small-business owners make significant contributions to the U.S. and global economies. Hotbeds of innovation, these small businesses take leadership roles in technological change and the development of new goods and services. Just how important are small businesses to our economy? Table 5.1 provides insight into the role of small business in today’s economy.

You may be one of the millions of Americans who’s considering joining the ranks of business owners. As you read this chapter, you’ll learn why entrepreneurship continues to be one of the hottest areas of business activity. Then you’ll get the information and tools you need to help you decide whether owning your own company is the right career path for you. Next you’ll discover what characteristics you’ll need to become a successful entrepreneur. Then we’ll look at the importance of small businesses in the economy, guidelines for starting and managing a small business, the many reasons small businesses continue to thrive in the United States, and the role of the Small Business Administration. Finally, the chapter explores the trends that shape entrepreneurship and small-business ownership today.

5.1 Entrepreneurship Today

Brothers Fernando and Santiago Aguerre exhibited entrepreneurial tendencies at an early age. At 8 and 9 years old respectively, they sold strawberries and radishes from a vacant lot near their parents’ home in Plata del Mar on the Atlantic coast of Argentina. At 11 and 12, they provided a surfboard repair service from their garage. As teenagers, Fer and Santi, as they call each other, opened Argentina’s first surf shop, which led to their most ambitious entrepreneurial venture of all.

The flat-footed brothers found that traipsing across hot sand in flip-flops was uncomfortable, so in 1984, they sank their $4,000 savings into manufacturing their own line of beach sandals. Now offering sandals and footwear for women, men, and children, as well as clothing for men, Reef sandals have become the world’s hottest beach footwear, with a presence in nearly every surf shop in the United States. 1

Catching the Entrepreneurial Spirit

Young entrepreneur living the dream.

Jack Bonneau is the quintessential entrepreneur. In the three years he has been in business, he has expanded his product line, opened multiple locations, established strategic partnerships, and secured sponsorship from several national brands. His business has garnered publicity from The New York Times, The Denver Post, The Today Show , Good Morning America , and numerous other media. He has shared his business success on several stages, speaking at TechStars and the Aspen Ideas Festival, and recently delivered the closing keynote speech at a national STEM conference. He even landed a gig on Shark Tank .

Jack Bonneau is smart, charismatic, an excellent spokesperson, and persistent in his mission. And he is only 11 years old—which also makes him very adorable.

Jack’s business was born from a need that most kids have: a desire for toys. He asked his dad, Steve Bonneau, for a LEGO Star Wars Death Star. The problem was that it cost $400. Jack’s dad said he could have it but only if he paid for it himself. This led Jack to do what a lot of kids do to earn some extra cash. He opened a lemonade stand. But he quickly learned that this would never help him realize his dream, so, with the advice and help of his father, he decided to open a lemonade stand at a local farmers market. “There were lots of people who wanted to buy great lemonade from an eight-year-old,” says Jack. In no time, Jack had earned enough to buy his LEGO Death Star. “I had sales of around $2,000, and my total profit was $900,” Jack said.

Jack realized that he was on to something. Adults love to buy things from cute kids. What if he could make even more money by opening more locations? Jack developed an expansion plan to open three new “Jack Stands” the following spring. Realizing that he would need more working capital, he secured a $5,000 loan from Young Americas Bank, a bank in Denver that specializes in loans to children. Jack made $25,000 in 2015.

The following year, Jack wanted to expand operations, so he secured a second loan for $12,000. He opened stands in several more locations, including shopping malls during the holiday season, selling apple cider and hot chocolate instead of lemonade. He also added additional shop space and recruited other young entrepreneurial kids to sell their products in his space, changing the name to Jack’s Stands and Marketplace. One of his first partnerships was Sweet Bee Sisters, a lip balm and lotion company founded by Lily, Chloe, and Sophie Warren. He also worked with 18 other young entrepreneurs who sell a range of products from organic dog treats to scarves and headbands.

Jack’s strategy worked, and the business brought in more than $100,000 last year. This year, he became the spokesperson for Santa Cruz Organic Lemonade, and he’s now looking at expanding into other cities such as Detroit and New Orleans.

Even though Jack is only 11 years old, he has already mastered financial literacy, customer service, marketing and sales, social skills, and other sound business practices—all the qualities of a successful entrepreneur.

• What do you think enabled Jack Bonneau to start and grow a successful business at such a young age?
• What personal characteristics and values will Jack need to continue running his business while also attending school full-time?

Sources: “About Jack’s Stands & Marketplaces,” https://www.jackstands.com, accessed February 1, 2018; Peter Gasca, “This 11-Year-Old Founder’s Advice Is As Profound as Any You Could Receive,” Inc., https://www.inc.com, July 27, 2017; Claire Martin, “Some Kids Sell Lemonade. He Starts a Chain,” The New York Times, https://www.nytimes.com, February 26, 2016.

Christy Glass Lowe, who monitors surf apparel for USBX Advisory Services LLC, notes, “They [Reef] built a brand from nothing and now they’re the dominant market share leader.”

The Aguerres, who currently live two blocks from each other in La Jolla, California, sold Reef to VF Corporation for more than $100 million in 2005. In selling Reef, “We’ve finally found our freedom,” Fernando says. “We traded money for time,” adds Santiago. Fernando remains active with surfing organizations, serving as president of the International Surfing Association, where he became known as “Ambassador of the Wave” for his efforts in getting all 90 worldwide members of the International Olympic Committee to unanimously vote in favor of including surfing in the 2020 Olympic Games. 2 He has also been named “Waterman of the Year” by the Surf Industry Manufacturers Association two times in 24 years. 3 Santi raises funds for his favorite not-for-profit, SurfAid. Both brothers are enjoying serving an industry that has served them so well.

The United States is blessed with a wealth of entrepreneurs such as the Aguerres who want to start a small business . According to research by the Small Business Administration , two-thirds of college students intend to be entrepreneurs at some point in their careers, aspiring to become the next Bill Gates or Jeff Bezos , founder of Amazon .com. But before you put out any money or expend energy and time, you’d be wise to check out Table 5.2 for some preliminary advice.

The desire to be one’s own boss cuts across all age, gender, and ethnic lines. Results of a recent U.S. Census Bureau survey of business owners show that minority groups and women are becoming business owners at a much higher rate than the national average. Table 5.3 illustrates these minority-owned business demographics.

Why has entrepreneurship remained such a strong part of the foundation of the U.S. business system for so many years? Because today’s global economy rewards innovative, flexible companies that can respond quickly to changes in the business environment. Such companies are started by entrepreneurs , people with vision, drive, and creativity, who are willing to take the risk of starting and managing a business to make a profit.

Entrepreneur or Small-Business Owner?

The term entrepreneur is often used in a broad sense to include most small-business owners. The two groups share some of the same characteristics, and we’ll see that some of the reasons for becoming an entrepreneur or a small-business owner are very similar. But there is a difference between entrepreneurship and small-business management. Entrepreneurship involves taking a risk, either to create a new business or to greatly change the scope and direction of an existing one. Entrepreneurs typically are innovators who start companies to pursue their ideas for a new product or service. They are visionaries who spot trends.

Although entrepreneurs may be small-business owners, not all small-business owners are entrepreneurs. Small-business owners are managers or people with technical expertise who started a business or bought an existing business and made a conscious decision to stay small. For example, the proprietor of your local independent bookstore is a small-business owner. Jeff Bezos , founder of Amazon .com, also sells books. But Bezos is an entrepreneur: He developed a new model—web-based book retailing—that revolutionized the bookselling world and then moved on to change retailing in general. Entrepreneurs are less likely to accept the status quo, and they generally take a longer-term view than the small-business owner.

Types of Entrepreneurs

Entrepreneurs fall into several categories: classic entrepreneurs, multipreneurs, and intrapreneurs.

Classic Entrepreneurs

Classic entrepreneurs are risk-takers who start their own companies based on innovative ideas. Some classic entrepreneurs are micropreneurs who start small and plan to stay small. They often start businesses just for personal satisfaction and the lifestyle. Miho Inagi is a good example of a micropreneur. On a visit to New York with college friends in 1998, Inagi fell in love with the city’s bagels. “I just didn’t think anything like a bagel could taste so good,” she said. Her passion for bagels led the young office assistant to quit her job and pursue her dream of one day opening her own bagel shop in Tokyo. Although her parents tried to talk her out of it, and bagels were virtually unknown in Japan, nothing deterred her. Other trips to New York followed, including an unpaid six-month apprenticeship at Ess-a-Bagel, where Inagi took orders, cleared trays, and swept floors. On weekends, owner Florence Wilpon let her make dough.

In August 2004, using $20,000 of her own savings and a $30,000 loan from her parents, Inagi finally opened tiny Maruichi Bagel. The timing was fortuitous, as Japan was about to experience a bagel boom. After a slow start, a favorable review on a local bagel website brought customers flocking for what are considered the best bagels in Tokyo. Inagi earns only about $2,300 a month after expenses, the same amount she was making as a company employee. “Before I opened this store I had no goals,” she says, “but now I feel so satisfied.” 4

In contrast, growth-oriented entrepreneurs want their business to grow into a major corporation. Most high-tech companies are formed by growth-oriented entrepreneurs. Jeff Bezos recognized that with Internet technology he could compete with large chains of traditional book retailers. Bezos ’s goal was to build his company into a high-growth enterprise—and he chose a name that reflected his strategy: Amazon.com. Once his company succeeded in the book sector, Bezos applied his online retailing model to other product lines, from toys and house and garden items to tools, apparel, music, and services. In partnership with other retailers, Bezos is well on his way to making Amazon’s vision “to be Earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online”—a reality. 5

Multipreneurs

Then there are multipreneurs, entrepreneurs who start a series of companies. They thrive on the challenge of building a business and watching it grow. In fact, over half of the chief executives at Inc. 500 companies say they would start another company if they sold their current one. Brothers Jeff and Rich Sloan are a good example of multipreneurs, having turned numerous improbable ideas into successful companies. Over the past 20-plus years, they have renovated houses, owned a horse breeding and marketing business, invented a device to prevent car batteries from dying, and so on. Their latest venture, a multimedia company called StartupNation , helps individuals realize their entrepreneurial dreams. And the brothers know what company they want to start next: yours. 6

Intrapreneurs

Some entrepreneurs don’t own their own companies but apply their creativity, vision, and risk-taking within a large corporation. Called intrapreneurs , these employees enjoy the freedom to nurture their ideas and develop new products, while their employers provide regular salaries and financial backing. Intrapreneurs have a high degree of autonomy to run their own minicompanies within the larger enterprise. They share many of the same personality traits as classic entrepreneurs, but they take less personal risk. According to Gifford Pinchot, who coined the term intrapreneur in his book of the same name, large companies provide seed funds that finance in-house entrepreneurial efforts. These include Intel , IBM , Texas Instruments (a pioneering intrapreneurial company), Salesforce.com , and Xerox .

Why Become an Entrepreneur?

As the examples in this chapter show, entrepreneurs are found in all industries and have different motives for starting companies. The most common reason cited by CEOs of the Inc. 500, the magazine’s annual list of fastest-growing private companies, is the challenge of building a business, followed by the desire to control their own destiny. Other reasons include financial independence and the frustration of working for someone else. Two important motives mentioned in other surveys are a feeling of personal satisfaction with their work, and creating the lifestyle that they want. Do entrepreneurs feel that going into business for themselves was worth it? The answer is a resounding yes. Most say they would do it again.

Concept Check

• Describe several types of entrepreneurs.
• What differentiates an entrepreneur from a small-business owner?
• What are some major factors that motivate entrepreneurs to start businesses?

5.2 Characteristics of Successful Entrepreneurs

Do you have what it takes to become an entrepreneur? Having a great concept is not enough. An entrepreneur must be able to develop and manage the company that implements his or her idea. Being an entrepreneur requires special drive, perseverance, passion, and a spirit of adventure, in addition to managerial and technical ability. Entrepreneurs are the company; they tend to work longer hours, take fewer vacations, and cannot leave problems at the office at the end of the day. They also share other common characteristics, as described in the next section.

The Entrepreneurial Personality

Studies of the entrepreneurial personality find that entrepreneurs share certain key traits. Most entrepreneurs are

• Ambitious: They are competitive and have a high need for achievement.
• Independent: They are individualists and self-starters who prefer to lead rather than follow.
• Self-confident: They understand the challenges of starting and operating a business and are decisive and confident in their ability to solve problems.
• Risk-takers: Although they are not averse to risk, most successful entrepreneurs favor business opportunities that carry a moderate degree of risk where they can better control the outcome over highly risky ventures where luck plays a large role.
• Visionary: Their ability to spot trends and act on them sets entrepreneurs apart from small-business owners and managers.
• Creative: To compete with larger firms, entrepreneurs need to have creative product designs, bold marketing strategies, and innovative solutions to managerial problems.
• Energetic: Starting and operating a business takes long hours. Even so, some entrepreneurs start their companies while still employed full-time elsewhere.
• Passionate. Entrepreneurs love their work, as Miho Inagi demonstrated by opening a bagel shop in Tokyo despite the odds against it being a success.
• Committed . Because they are so committed to their companies, entrepreneurs are willing to make personal sacrifices to achieve their goals.

Customer Satisfaction and Quality

Ethical choices transform family business into international brand.

Ever since Apollonia Poilâne was a young girl growing up in Paris, she always knew what she wanted to do when she grew up: take over the family business. But she didn’t anticipate how quickly this would happen. When her father—Lionel Poilâne—and her mother died in a helicopter crash in 2002, France lost its most celebrated baker, and Apollonia stepped into the role. She was just 18 years old at the time with plans to matriculate to Harvard in the fall, but the moment her parents had prepared her for had come. As her Harvard admissions essay said, “The work of several generations is at stake.”

With organization and determination, Apollonia managed one of the best French bakeries in the world—based in Paris—from her apartment in Cambridge, Massachusetts. She would usually wake up an extra two hours before classes to make sure she would get all the phone calls done for work. “After classes I check on any business regarding the company and then do my homework,” she says. “Before I go to bed I call my production manager in Paris to check the quality of the bread.” Because the name Poilâne has earned a place with a very small group of prestige bakers, the 18-year-old was determined to continue the tradition of customer satisfaction and quality her grandfather established in 1932. When her grandfather suffered a stroke in 1973, his 28-year-old son, Lionel, poured his heart into the business and made the family bread into the global brand it is today. Lionel opened two more bakeries in Paris and another in London. He developed and nurtured a worldwide network of retailers and celebrities where bread is shipped daily via FedEx to upscale restaurants and wealthy clients around the world.

Experimenting with sourdough is what distinguished Poilâne’s products from bread produced by Paris’s other bakers, and it has remained the company’s signature product. It is baked with a “P” carved into the crust, a throwback to the days when the use of communal ovens forced bakers to identify their loaves, and it also ensures that the loaf doesn’t burst while it’s baking. Today, Poilâne also sells croissants, pastries, and a few specialty breads, but the company’s signature item is still the four-pound  miche , a wheel of sourdough, a country bread,  pain Poilâne .

“Apollonia is definitely passionate about her job,” says Juliette Sarrazin, manager of the successful Poilâne Bakery in London. “She really believes in the work of her father and the company, and she is looking at the future, which is very good.”

Apollonia’s work ethic and passion fueled her drive even when she was a student. Each day presented a juggling act of new problems to solve in Paris while other Harvard students slept. As Apollonia told a student reporter from The Harvard Crimson  writing a story about her, “The one or two hours you spend procrastinating I spend working. It’s nothing demanding at all. It was always my dream to run the company.”

Her dedication paid off, and Apollonia retained control of important decisions, strategy, and business goals, describing herself as the “commander of the ship,” determining the company’s overall direction. Today, Poilâne is an $18 million business that employs 160 people. Poilâne runs three restaurants called Cuisine de Bar in Paris and in London, serving casual meals such as soups, salads, and open-faced  tartines . The company ships more than 200,000 loaves a year to clients in 20 countries, including the United States, Japan, and Saudi Arabia. “More people understand what makes the quality of the bread, what my father spent years studying, so I am thrilled about that,” says Apollonia.

• What type of entrepreneur is Apollonia Poilâne?
• What personal ethics drove Apollonia’s decision to take over the family business?

Sources: “About Us,” https://www.poilane.com, accessed February 1, 2018; Meg Bortin, “Apollonia Poilâne Builds on Her Family’s Legacy,” The New York Times, https://www.nytimes.com, accessed February 1, 2018; Lauren Collins, “Bread Winner: A Daughter Upholds the Traditions of France’s Premier Baking Dynasty,” The New Yorker, https://www.newyorker.com, December 3, 2012; Gregory Katz, “Her Daily Bread,” American Way magazine, July 15, 2005, p. 34; Clarel Antoine, “No Time to Loaf Around,” Harvard Crimson, http://www.thecrimson.com, October 16, 2003.

Most entrepreneurs combine many of the above characteristics. Sarah Levy, 23, loved her job as a restaurant pastry chef but not the low pay, high stress, and long hours of a commercial kitchen. So she found a new one—in her parents’ home—and launched Sarah’s Pastries and Candies. Part-time staffers help her fill pastry and candy orders to the soothing sounds of music videos playing in the background. Cornell University graduate Conor McDonough started his own web design firm, OffThePathMedia.com, after becoming disillusioned with the rigid structure of his job. “There wasn’t enough room for my own expression,” he says. “Freelancing keeps me on my toes,” says busy graphic artist Ana Sanchez. “It forces me to do my best work because I know my next job depends on my performance.” 7

Managerial Ability and Technical Knowledge

A person with all the characteristics of an entrepreneur might still lack the necessary business skills to run a successful company. Entrepreneurs need the technical knowledge to carry out their ideas and the managerial ability to organize a company, develop operating strategies, obtain financing, and supervise day-to-day activities. Jim Crane, who built Eagle Global Logistics from a start-up into a $250 million company, addressed a group at a meeting, saying, “I have never run a $250 million company before so you guys are going to have to start running this business.” 8

Good interpersonal and communication skills are important in dealing with employees, customers, and other business associates such as bankers, accountants, and attorneys. As we will discuss later in the chapter, entrepreneurs believe they can learn these much-needed skills. When Jim Steiner started his toner cartridge remanufacturing business, Quality Imaging Products , his initial investment was $400. He spent $200 on a consultant to teach him the business and $200 on materials to rebuild his first printer cartridges. He made sales calls from 8.00 a.m. to noon and made deliveries to customers from noon until 5:00 p.m. After a quick dinner, he moved to the garage, where he filled copier cartridges until midnight, when he collapsed into bed, sometimes covered with carbon soot. And this was not something he did for a couple of months until he got the business off the ground—this was his life for 18 months. 9 But entrepreneurs usually soon learn that they can’t do it all themselves. Often they choose to focus on what they do best and hire others to do the rest.

• Describe the personality traits and skills characteristic of successful entrepreneurs.
• What does it mean when we say that an entrepreneur should work on the business, not in it?

5.3 Small Business: Driving America’s Growth

Although large corporations dominated the business scene for many decades, in recent years small businesses have once again come to the forefront. Downsizings that accompany economic downturns have caused many people to look toward smaller companies for employment, and they have plenty to choose from. Small businesses play an important role in the U.S. economy, representing about half of U.S. economic output, employing about half the private sector workforce, and giving individuals from all walks of life a chance to succeed.

What Is a Small Business?

How many small businesses are there in the United States? Estimates range from 5 million to over 22 million, depending on the size limits government agencies and other groups use to define a small business or the number of businesses with or without employees. The Small Business Administration (SBA) established size standards to define whether a business entity is small and therefore eligible for government programs and preferences that are reserved for “small businesses.” Size standards are based on the types of economic activity or industry, generally matched to the North American Industry Classification System ( NAICS ). 10

Small businesses are defined in many ways. Statistics for small businesses vary based on criteria such as new/start-up businesses, the number of employees, total revenue, length of time in business, nonemployees, businesses with employees, geographic location, and so on. Due to the complexity and need for consistent statistics and reporting for small businesses, several organizations are now working together to combine comprehensive data sources to get a clear and accurate picture of small businesses in the United States. Table 5.4 provides a more detailed look at small-business owners.

One of the best sources to track U.S. entrepreneurial growth activity is the Ewing Marion Kauffman Foundation . The Kauffman Foundation is among the largest private foundations in the country, with an asset base of approximately $2 billion, and focuses on projects that encourage entrepreneurship and support education through grants and research activities. They distributed over $17 million in grants in 2013. 11

The Kauffman Foundation supports new business creation in the United States through two research programs. The annual Kauffman Index of Entrepreneurship series measures and interprets indicators of U.S. entrepreneurial activity at the national, state, and metropolitan level. The foundation also contributes to the cost of the Annual Survey of Entrepreneurs (ASE), which is a public-private partnership between the foundation, the U.S. Census Bureau, and the Minority Business Development Agency. The ASE provides annual data on select economic and demographic characteristics of employer businesses and their owners by gender, ethnicity, race, and veteran status. 12 The Kauffman Index of Entrepreneurship series is an umbrella of annual reports that measures how people and businesses contribute to America’s overall economy. What is unique about the Kauffman reports is that the indexes don’t focus on only inputs (as most small-business reporting has been done in the past); it reports primarily on entrepreneurial outputs—the actual results of entrepreneurial activity, such as new companies, business density, and growth rates. The reports also include comprehensive, interactive data visualizations that enable users to slice and dice a myriad of data nationally, at the state level, and for the 40 largest metropolitan areas. 13

The Kauffman Index series consists of three in-depth studies—Start-up Activity, Main Street Entrepreneurship, and Growth Entrepreneurship.

• The Kauffman Index of Startup Activity is an early indicator of new entrepreneurship in the United States. It focuses on new business creation activity and people engaging in business start-up activity, using three components: the rate of new entrepreneurs, the opportunity share of new entrepreneurs, and start-up density.
• The Kauffman Index of Main Street Entrepreneurship measures established small-business activity—focusing on U.S. businesses more than five years old with less than 50 employees from 1997 to 2016. Established in 2015, it takes into account three components of local, small-business activity: the rate of business owners in the economy, the five-year survival rate of businesses, and the established small-business density.
• The Kauffman Growth Entrepreneurship Index is a composite measure of entrepreneurial business growth in the United States that captures growth entrepreneurship in all industries and measures business growth from both revenue and job perspectives. Established in 2016, it includes three component measures of business growth: rate of start-up growth, share of scale-ups, and high-growth company density.

Data sources for the Kauffman Index calculations are based on Current Population Survey (CPS), with sample sizes of more than 900,000 observations, and the Business Dynamics Statistics (BDS), which covers approximately 5 million businesses. The Growth Entrepreneurship Index also includes Inc. 500/5000 data.

Small businesses in the United States can be found in almost every industry, including services, retail, construction, wholesale, manufacturing, finance and insurance, agriculture and mining, transportation, and warehousing. Established small businesses are defined as companies that have been in business at least five years and employ at least one, but less than 50, employees. Table 5.5 provides the number of employees by the size of established business. More than half of small businesses have between one and four employees.

• What are three ways small businesses can be defined?
• What social and economic factors have prompted the rise in small business?

5.4 Ready, Set, Start Your Own Business

You have decided that you’d like to go into business for yourself. What is the best way to go about it? Start from scratch? Buy an existing business? Or buy a franchise? About 75 percent of business start-ups involve brand-new organizations, with the remaining 25 percent representing purchased companies or franchises. Franchising may have been discussed elsewhere in your course, so we’ll cover the other two options in this section.

Getting Started

The first step in starting your own business is a self-assessment to determine whether you have the personal traits you need to succeed and, if so, what type of business would be best for you. Table 5.6 provides a checklist to consider before starting your business.

Finding the Idea

Entrepreneurs get ideas for their businesses from many sources. It is not surprising that about 80 percent of Inc. 500 executives got the idea for their company while working in the same or a related industry. Starting a firm in a field where you have experience improves your chances of success. Other sources of inspiration are personal experiences as a consumer; hobbies and personal interests; suggestions from customers, family, and friends; industry conferences; and college courses or other education.

An excellent way to keep up with small-business trends is by reading entrepreneurship and small-business magazines and visiting their websites. With articles on everything from idea generation to selling a business, they provide an invaluable resource and profile some of the young entrepreneurs and their successful business ventures ( Table 5.7 ). 14

These dynamic individuals, who are already so successful in their 20s and 30s, came up with unique ideas and concepts and found the right niche for their businesses.

Interesting ideas are all around you. Many successful businesses get started because someone identifies a need and then finds a way to fill it. Do you have a problem that you need to solve? Or a product that doesn’t work as well as you’d like? Raising questions about the way things are done and seeing opportunity in adversity are great ways to generate ideas.

Choosing a Form of Business Organization

A key decision for a person starting a new business is whether it will be a sole proprietorship, partnership, corporation, or limited liability company. As discussed earlier, each type of business organization has advantages and disadvantages. The choice depends on the type of business, number of employees, capital requirements, tax considerations, and level of risk involved.

Developing the Business Plan

Once you have the basic concept for a product or service, you must develop a plan to create the business. This planning process, culminating in a sound business plan , is one of the most important steps in starting a business. It can help to attract appropriate loan financing, minimize the risks involved, and be a critical determinant in whether a firm succeeds or fails. Many people do not venture out on their own because they are overwhelmed with doubts and concerns. A comprehensive business plan lets you run various “what if” analyses and evaluate your business without any financial outlay or risk. You can also develop strategies to overcome problems well before starting the business.

Taking the time to develop a good business plan pays off. A venture that seems sound at the idea stage may not look so good on paper. A well-prepared, comprehensive, written business plan forces entrepreneurs to take an objective and critical look at their business venture and analyze their concept carefully; make decisions about marketing, sales, operations, production, staffing, budgeting, and financing; and set goals that will help them manage and monitor its growth and performance.

The business plan also serves as the initial operating plan for the business. Writing a good business plan takes time. But many businesspeople neglect this critical planning tool in their eagerness to begin doing business, getting caught up in the day-to-day operations instead.

The key features of a business plan are a general description of the company, the qualifications of the owner(s), a description of the products or services, an analysis of the market (demand, customers, competition), sales and distribution channels, and a financial plan. The sections should work together to demonstrate why the business will be successful, while focusing on the uniqueness of the business and why it will attract customers. Table 5.8 describes the essential elements of a business plan.

A common use of a business plan is to persuade lenders and investors to finance the venture. The detailed information in the plan helps them assess whether to invest. Even though a business plan may take months to write, it must capture potential investors’ interest within minutes. For that reason, the basic business plan should be written with a particular reader in mind. Then you can fine-tune and tailor it to fit the investment goals of the investor(s) you plan to approach.

But don’t think you can set aside your business plan once you obtain financing and begin operating your company. Entrepreneurs who think their business plan is only for raising money make a big mistake. Business plans should be dynamic documents, reviewed and updated on a regular basis—monthly, quarterly, or annually, depending on how the business progresses and the particular industry changes.

Owners should adjust their sales and profit projections up or down as they analyze their markets and operating results. Reviewing your plan on a constant basis will help you identify strengths and weaknesses in your marketing and management strategies and help you evaluate possible opportunities for expansion in light of both your original mission and goals, current market trends, and business results. The Small Business Administration (SBA) offers sample business plans and online guidance for business plan preparation under the “Business Guide” tab at https://www.sba.gov.

Financing the Business

Once the business plan is complete, the next step is to obtain financing to set up your company. The funding required depends on the type of business and the entrepreneur’s own investment. Businesses started by lifestyle entrepreneurs require less financing than growth-oriented businesses, and manufacturing and high-tech companies generally require a large initial investment.

Who provides start-up funding for small companies? Like Miho Inagi and her Tokyo bagel shop, 94 percent of business owners raise start-up funds from personal accounts, family, and friends. Personal assets and money from family and friends are important for new firms, whereas funding from financial institutions may become more important as companies grow. Three-quarters of Inc . 500 companies have been funded on $100,000 or less. 15

The two forms of business financing are debt , borrowed funds that must be repaid with interest over a stated time period, and equity , funds raised through the sale of stock (i.e., ownership) in the business. Those who provide equity funds get a share of the business’s profits. Because lenders usually limit debt financing to no more than a quarter to a third of the firm’s total needs, equity financing often amounts to about 65 to 75 percent of total start-up financing.

One way to finance a start-up company is bootstrapping, which is basically funding the operation with your own resources. If the resources needed are not available to an individual, there are other options. Two sources of equity financing for young companies are angel investors and venture-capital firms. Angel investors are individual investors or groups of experienced investors who provide financing for start-up businesses by investing their own money, often referred to as “seed capital.” This gives the investors more flexibility on what they can and will invest in, but because it is their own money, angels are careful. Angel investors often invest early in a company’s development, and they want to see an idea they understand and can have confidence in. Table 5.9 offers some guidelines on how to attract angel financing.

Venture capital is financing obtained from venture capitalists, investment firms that specialize in financing small, high-growth companies. Venture capitalists receive an ownership interest and a voice in management in return for their money. They typically invest at a later stage than angel investors. We’ll discuss venture capital in greater detail when discussing financing the enterprise.

Buying a Small Business

Another route to small-business ownership is buying an existing business. Although this approach is less risky, many of the same steps for starting a business from scratch apply to buying an existing company. It still requires careful and thorough analysis. The potential buyer must answer several important questions: Why is the owner selling? Do they want to retire or move on to a new challenge, or are there problems with the business? Is the business operating at a profit? If not, can this be corrected? On what basis has the owner valued the company, and is it a fair price? What are the owner’s plans after selling the company? Will they be available to provide assistance through the change of ownership of the business? And depending on the type of business it is, will customers be more loyal to the owner than to the product or service being offered? Customers could leave the firm if the current owner decides to open a similar business. To protect against this, many purchasers include a noncompete clause in the contract of sale, which generally means that the owner of the company being sold may not be allowed to compete in the same industry of the acquired business for a specific amount of time.

You should prepare a business plan that thoroughly analyzes all aspects of the business. Get answers to all your questions, and determine, via the business plan, whether the business is a sound one. Then you must negotiate the price and other terms of purchase and obtain appropriate financing. This can be a complicated process and may require the use of a consultant or business broker.

Risky Business

Running your own business may not be as easy as it sounds. Despite the many advantages of being your own boss, the risks are great as well. Over a period of five years, nearly 50% percent of small businesses fail according to the Kauffman Foundation. 16

Businesses close down for many reasons—and not all are failures. Some businesses that close are financially successful and close for nonfinancial reasons. But the causes of business failure can be interrelated. For example, low sales and high expenses are often directly related to poor management. Some common causes of business closure are:

• Economic factors—business downturns and high interest rates
• Financial causes—inadequate capital, low cash balances, and high expenses
• Lack of experience—inadequate business knowledge, management experience, and technical expertise
• Personal reasons—the owners may decide to sell the business or move on to other opportunities

Inadequate early planning is often at the core of later business problems. As described earlier, a thorough feasibility analysis, from market assessment to financing, is critical to business success. Yet even with the best plans, business conditions change and unexpected challenges arise. An entrepreneur may start a company based on a terrific new product only to find that a larger firm with more marketing, financing, and distribution clout introduces a similar item.

The stress of managing a business can also take its toll. The business can consume your whole life. Owners may find themselves in over their heads and unable to cope with the pressures of business operations, from the long hours to being the main decision maker. Even successful businesses have to deal with ongoing challenges. Growing too quickly can cause as many problems as sluggish sales. Growth can strain a company’s finances when additional capital is required to fund expanding operations, from hiring additional staff to purchasing more raw material or equipment. Successful business owners must respond quickly and develop plans to manage its growth.

So, how do you know when it is time to quit? “Never give up” may be a good motivational catchphrase, but it is not always good advice for a small-business owner. Yet, some small-business owners keep going no matter what the cost. For example, Ian White’s company was trying to market a new kind of city map. White maxed out 11 credit cards and ran up more than $100,000 in debt after starting his company. He ultimately declared personal bankruptcy and was forced to find a job so that he could pay his bills. Maria Martz didn’t realize her small business would become a casualty until she saw her tax return showing her company’s losses in black and white—for the second year in a row. It convinced her that enough was enough and she gave up her gift-basket business to become a full-time homemaker. But once the decision is made, it may be tough to stick to. “I got calls from people asking how come I wasn’t in business anymore. It was tempting to say I’d make their basket but I had to tell myself it is finished now.” 17

• How can potential business owners find new business ideas?
• Why is it important to develop a business plan? What should such a plan include?
• What financing options do small-business owners have? What risks do they face?

5.5 Managing a Small Business

Managing a small business is quite a challenge. Whether you start a business from scratch or buy an existing one, you must be able to keep it going. The small-business owner must be ready to solve problems as they arise and move quickly if market conditions change.

Managing Change

Learning how to pivot.

Most small business owners either use, or at least know of, the iconic email service MailChimp, a company that is growing by more than $120 million every year and is on track to bring in $525 million over the coming year. But Ben Chestnut, the CEO and cofounder, says it took MailChimp several years to figure out what it did well.

When Chestnut was laid off from his job at the Cox Media Group in Atlanta, he founded Rocket Science Group, a web design firm. Cofounder Dan Kurzius (who taught himself to code) joined Chestnut, and they began to focus their sales efforts on tech companies. But when the tech bubble burst, they pivoted to focus on selling to airline and travel companies. Then 9/11 hit, and they needed to change focus again, this time on the real estate market. However, both Chestnut and Kurzius discovered they didn’t enjoy sales (and they weren’t very good at it), nor did they like the bureaucracy of working with large companies. “The only companies we could relate to were small businesses, and they always asked for email marketing.”

This insight helped Chestnut to recall a product feature the Rocket Science Group had previously developed for an email greeting card project. So Chestnut and Kurzius evaluated the marketing software and began to test it with small businesses. “Our day jobs felt like going to these big organizations and pitching to them, and it was miserable,” Chestnut says. “But we really loved our nighttime jobs, which were helping the small businesses use this email marketing app.” Their passion, along with market feedback, led to their decision to completely focus on email marketing for small businesses. But it wasn’t until almost 2009 that MailChimp found its sweet spot. The founders initially wanted to give away one product that collected subscribers and then charge for another, which was sending emails, but it would have been very difficult to divide the product into two pieces. That’s when they landed on the Freemium idea. “Let’s just make the whole thing free,” said Chestnut.

The idea was that if they made it cheap and easy for small businesses to try MailChimp, their business would grow and they would be happy to pay for MailChimp services. MailChimp allows customers to send an email for free to 1,999 people at once but charges for emails sent to over 2,000 people and for premium features. MailChimp charges a monthly recurring fee starting at $10 for sending more than 12,000 emails a month.

The idea quickly proved to be a huge success. MailChimp went from a few hundred thousand users to 1 million users in a year. The next year they added another million users.

The MailChimp founders learned a lot of lessons during their 17 years in business. One of their most important lessons is knowing when to change. When you see an opportunity, don’t be afraid to pivot and change course, especially if it means focusing on a market you’re passionate about. Listening to market feedback and following their passion earned MailChimp’s founders recognition as “2017 Business of the Year” by Inc. magazine.

• What led MailChimp’s founders to change its focus on the customers they were selling to?
• What was MailChimp’s “big idea” that changed the business, and why was it so successful?

Sources: Maria Aspan, “Want Proof That Patience Pays Off? Ask the Founders of This 17-Year-Old $525 Million Email Empire,” Inc. , https://www.inc.com, Winter 2017/January 2018 issue; “MailChimp: From Startup to Inc. Magazine’s Top Company,” CNBC, https://www.cnbc.com, December 12, 2017; Farhad Manjoo, “MailChimp and the Un-Silicon Valley Way to Make It as a Start-Up,” The New York Times, https://www.nytimes.com, October 5, 2016.

A sound business plan is key to keeping the small-business owner in touch with all areas of his or her business. Hiring, training, and managing employees is another important responsibility because the owner’s role may change over time. As the company grows, others will make many of the day-to-day decisions while the owner focuses on managing employees and planning for the firm’s long-term success. The owner must constantly evaluate company performance and policies in light of changing market and economic conditions and develop new policies as required. They must also nurture a continual flow of ideas to keep the business growing. The types of employees needed may change too as the firm grows. For instance, a larger firm may need more managerial talent and technical expertise.

Using Outside Consultants

One way to ease the burden of managing a business is to hire outside consultants. Nearly all small businesses need a good certified public accountant ( CPA ) who can help with financial record keeping, decision-making, and tax planning. An accountant who works closely with the owner to help the business grow is a valuable asset. An attorney who knows about small-business law can provide legal advice and draw up essential contracts and documents. Consultants in areas such as marketing, employee benefits, and insurance can be used on an as-needed basis. Outside directors with business experience are another way for small companies to get advice. Resources such as these free the small-business owner to concentrate on medium- and long-range planning and day-to-day operations.

Some aspects of business can be outsourced or contracted out to specialists. Among the more common departments that use outsourcing are information technology, marketing, customer service, order fulfillment, payroll, and human resources. Hiring an outside company—in many cases another small business—can save money because the purchasing firm buys just the services it needs and makes no investment in expensive technology. Management should review outsourced functions as the business grows because at some point it may be more cost-effective to bring them in-house.

Hiring and Retaining Employees

It is important to identify all the costs involved in hiring an employee to make sure your business can afford it. Recruiting, help-wanted ads, extra space, and taxes will easily add about 10–15 percent to their salary, and employee benefits will add even more. Hiring an employee may also mean more work for you in terms of training and management. It’s a catch-22: To grow you need to hire more people, but making the shift from solo worker to boss can be stressful.

Attracting good employees is more difficult for a small firm, which may not be able to match the higher salaries, better benefits, and advancement potential offered by larger firms. Small companies need to be creative to attract the right employees and convince applicants to join their firm. Once they hire an employee, small-business owners must make employee satisfaction a top priority in order to retain good people. A company culture that nurtures a comfortable environment for workers, flexible hours, employee benefit programs, opportunities to help make decisions, and a share in profits and ownership are some ways to do this.

Duane Ruh figured out how to build a $1.2 million business in a town with just 650 residents. It’s all about treating employees right. The log birdhouse and bird feeder manufacturer, Little Log Co., located in Sargent, Nebraska, boasts employee-friendly policies you read about but rarely see put into practice. Ruh offers his employees a flexible schedule that gives them plenty of time for their personal lives. During a slow period last summer, Ruh cut back on hours rather than lay anyone off. There just aren’t that many jobs in that part of Nebraska that his employees could go to, so when he received a buyout offer that would have closed his facility but kept him in place with an enviable salary, he turned it down. Ruh also encourages his employees to pursue side or summer jobs if they need to make extra money, assuring them that their Little Log jobs are safe. 18

Going Global with Exporting

More and more small businesses are discovering the benefits of looking beyond the United States for market opportunities. The global marketplace represents a huge opportunity for U.S. businesses, both large and small. Small businesses’ decision to export is driven by many factors, one of which is the desire for increased sales and higher profits. U.S. goods are less expensive for overseas buyers when the value of the U.S. dollar declines against foreign currencies, and this creates opportunities for U.S. companies to sell globally. In addition, economic conditions such as a domestic recession, foreign competition within the United States, or new markets opening up in foreign countries may also encourage U.S. companies to export.

Like any major business decision, exporting requires careful planning. Small businesses may hire international-trade consultants or distributors to get started selling overseas. These specialists have the time, knowledge, and resources that most small businesses lack. Export trading companies (ETCs) buy goods at a discount from small businesses and resell them abroad. Export management companies (EMCs) act on a company’s behalf. For fees of 5–15 percent of gross sales and multiyear contracts, they handle all aspects of exporting, including finding customers, billing, shipping, and helping the company comply with foreign regulations.

Many online resources are also available to identify potential markets for your goods and services, as well as to decipher the complexities involved in preparing to sell in a foreign country. The Small Business Association ’s Office of International Trade has links to many valuable sites. The Department of Commerce offers services for small businesses that want to sell abroad. Contact its Trade Information Center, 1-800-USA-TRADE, or its Export Center ( http://www.export.gov ).

• How does the small-business owner’s role change over time?
• How does managing a small business contribute to its growth?
• What are the benefits to small firms of doing business internationally, and what steps can small businesses take to explore their options?

5.6 Small Business, Large Impact

An uncertain economy has not stopped people from starting new companies. The National Federation of Independent Businesses reports that 85 percent of Americans view small businesses as a positive influence on American life. This is not surprising when you consider the many reasons why small businesses continue to thrive in the United States:

• Independence and a better lifestyle: Large corporations no longer represent job security or offer the fast-track career opportunities they once did. Mid-career employees leave the corporate world—either voluntarily or as a result of downsizing—in search of the new opportunities that self-employment provides. Many new college and business school graduates shun the corporate world altogether to start their own companies or look for work in smaller firms.
• Personal satisfaction from work: Many small-business owners cite this as one of the primary reasons for starting their companies. They love what they do.
• Best route to success: Business ownership provides greater advancement opportunities for women and minorities, as we will discuss later in this chapter. It also offers small-business owners the potential for profit.
• Rapidly changing technology: Technology advances and decreased costs provide individuals and small companies with the power to compete in industries that were formerly closed to them.
• Major corporate restructuring and downsizing: These force many employees to look for other jobs or careers. They may also provide the opportunity to buy a business unit that a company no longer wants.
• Outsourcing: As a result of downsizing, corporations may contract with outside firms for services they used to provide in-house. Outsourcing creates opportunities for smaller companies that offer these specialized goods and services.
• Small businesses are resilient: They are able to respond fairly quickly to changing economic conditions by refocusing their operations.

There are several cities and regions that are regarded as the best locations for start-up businesses and entrepreneurs. Among them are Tulsa, Oklahoma; Tampa, Florida; Atlanta, Georgia; Raleigh, North Carolina; Oklahoma City, Oklahoma; Seattle, Washington; Minneapolis, Minnesota; and Austin, Texas. 19

Why Stay Small?

Owners of small businesses recognize that being small offers special advantages. Greater flexibility and an uncomplicated company structure allow small businesses to react more quickly to changing market forces. Innovative product ideas can be developed and brought to market more quickly, using fewer financial resources and personnel than would be needed in a larger company. And operating more efficiently keeps costs down as well. Small companies can also serve specialized markets that may not be cost-effective for large companies. Another feature is the opportunity to provide a higher level of personal service. Such attention brings many customers back to small businesses such as gourmet restaurants, health clubs, spas, fashion boutiques, and travel agencies.

Steve Niewulis played in baseball’s minor leagues before an injury to his rotator cuff cut short his career. Niewulis decided to combine his love of the game with a clever idea that has elevated him to the big leagues. The fact that players had trouble keeping their hands dry while batting inspired his big idea: a sweat-busting rosin bag attached to a wristband so that a player can dry the bat handle between pitches. In less than two years, Niewulis’s Fort Lauderdale, Florida, company, Tap It! Inc., sold thousands of Just Tap It! wristbands. The product, which retails for $12.95, is used by baseball players, basketball players, tennis players, golfers, and even rock climbers. His secret to success? Find a small distribution network that allows small companies, with just one product line, to succeed. 20

On the other hand, being small is not always an asset. The founders may have limited managerial skills or encounter difficulties obtaining adequate financing, potential obstacles to growing a company. Complying with federal regulations is also more expensive for small firms. Those with fewer than 20 employees spend about twice as much per employee on compliance than do larger firms. In addition, starting and managing a small business requires a major commitment by the owner. Long hours, the need for owners to do much of the work themselves, and the stress of being personally responsible for the success of the business can take a toll.

But managing your company’s growing pains doesn’t need to be a one-person job. Four years after he started DrinkWorks (now Whirley DrinkWorks), a company that makes custom drinking cups, Richard Humphrey was logging 100-hour weeks. “I was concerned that if I wasn’t there every minute, the company would fall apart.” Humphrey got sick, lost weight, and had his engagement fall apart. When forced by a family emergency to leave the company in the hands of his five employees, Humphrey was amazed at how well they managed in his absence. “They stepped up to the plate and it worked out,” he says. “After that the whole company balanced out.” 21

• Why are small businesses becoming so popular?
• Discuss the major advantages and disadvantages of small businesses.

5.7 The Small Business Administration

Many small-business owners turn to the Small Business Administration (SBA) for assistance. The SBA’s mission is to speak on behalf of small business, and through its national network of local offices it helps people start and manage small businesses, advises them in the areas of finance and management, and helps them win federal contracts. Its toll-free number—1-800-U-ASK-SBA (1-800-827-5722)—provides general information, and its website at http://www.sba.gov offers details on all its programs. 22

Financial Assistance Programs

The SBA offers financial assistance to qualified small businesses that cannot obtain financing on reasonable terms through normal lending channels. This assistance takes the form of guarantees on loans made by private lenders. (The SBA no longer provides direct loans.) These loans can be used for most business purposes, including purchasing real estate, equipment, and materials. The SBA has been responsible for a significant amount of small-business financing in the United States. In the fiscal year ending on September 30, 2017, the SBA backed more than $25 billion in loans to almost 68,000 small businesses, including about $9 billion to minority-owned firms and $7.5 billion in loans to businesses owned by women. It also provided more than $1.7 billion in home and business disaster loans. 23

Other SBA programs include the New Markets Venture Capital Program, which promotes economic development and job opportunities in low-income geographic areas, while other programs offer export financing and assistance to firms that suffer economic harm after natural or other disasters.

More than 300 SBA-licensed Small Business Investment Companies (SBICs) provide about $6 billion each year in long-term financing for small businesses. The SBA’s website suggests seeking angel investors and using SBA-guaranteed loans as a way to fund the start-up. These privately owned and managed investment companies hope to earn a substantial return on their investments as the small businesses grow.

SCORE-ing with Management Assistance Programs

The SBA also provides a wide range of management advice. Its Business Development Library has publications on most business topics. Its “Starting Out” series offers brochures on how to start a wide variety of businesses—from ice-cream stores to fish farms.

Business development officers at the Office of Business Development and local Small Business Development Centers counsel many thousands of small-business owners each year, offering advice, training, and educational programs. The SBA also offers free management consulting through two volunteer groups: the Service Corps of Retired Executives (SCORE), and the Active Corps of Executives (ACE). Executives in these programs use their own business backgrounds to help small-business owners. SCORE has expanded its outreach into new markets by offering email counseling through its website ( http://www.score.org ). The SBA also offers free online resources and courses for small-business owners and aspiring entrepreneurs in its Learning Center, located on the SBA website under the “Learning Center” tab.

Assistance for Women and Minorities

The SBA is committed to helping women and minorities increase their business participation. It offers a minority small-business program, microloans, and the publication of Spanish-language informational materials. It has increased its responsiveness to small businesses by giving regional offices more decision authority and creating high-tech tools for grants, loan transactions, and eligibility reviews.

The SBA offers special programs and support services for socially and economically disadvantaged persons, including women, Native Americans, and Hispanic people through its Minority Business Development Agency. It also makes a special effort to help veterans go into business for themselves.

• What is the Small Business Administration (SBA)?
• Describe the financial and management assistance programs offered by the SBA.

5.8 Trends in Entrepreneurship and Small-Business Ownership

Entrepreneurship has changed since the heady days of the late 1990s, when starting a dot-com while still in college seemed a quick route to riches and stock options. Much entrepreneurial opportunity comes from major changes in demographics, society, and technology, and at present there is a confluence of all three. A major demographic group is moving into a significantly different stage in life, and minorities are increasing their business ownership in remarkable numbers. We have created a society in which we expect to have our problems taken care of, and the technological revolution stands ready with already-developed solutions. Evolving social and demographic trends, combined with the challenge of operating in a fast-paced technology-dominated business climate, are changing the face of entrepreneurship and small-business ownership.

Into the Future: Start-ups Drive the Economy

Did new business ventures drive the economic recovery from the 2001–2002 and 2007–2009 to recessions, and are they continuing to make significant contributions to the U.S. economy? The economists who review Department of Labor employment surveys and SBA statistics think so. “Small business drives the American economy,” says Dr. Chad Moutray, former chief economist for the SBA’s Office of Advocacy. “Main Street provides the jobs and spurs our economic growth. American entrepreneurs are creative and productive.” Numbers alone do not tell the whole story, however. Are these newly self-employed workers profiting from their ventures, or are they just biding their time during a period of unemployment?

U.S. small businesses employed 57.9 million people in 2016, representing nearly 48 percent of the workforce. The number of net new jobs added to the economy was 1.4 million. 24

The highest rate of growth is coming from women-owned firms, which continues to rise at rates higher than the national average—and with even stronger growth rates since the recession. There were an estimated 11.6 million women-owned businesses employing nearly 9 million people in 2016, generating more than $1.7 trillion in revenue. 25

Between 2007 and 2017, women-owned firms increased by 114 percent, compared to a 44 percent increase among all businesses. This means that growth rates for women-owned businesses are 2.5 times faster than the national average. Employment growth was also stronger than national rates. Women-owned businesses increased 27 percent over the past 20 years, while overall business employment has increased by 13 percent since 2007. 26

These trends show that more workers are striking out on their own and earning money doing it. It has become very clear that encouraging small-business activity leads to continued strong overall economic growth.

Changing Demographics Create Entrepreneurial Diversity

The mantra “60 is the new 40” describes today’s Baby Boomers who indulge in much less knitting and golf in their retirement years. The AARP predicts that silver-haired entrepreneurs will continue to rise in the coming years. According to a recent study by the Kauffman Foundation , Baby Boomers are twice as likely as Millennials to start a new business. In fact, close to 25 percent of all new entrepreneurs fall between the ages of 55 and 64. 27 This has created a ripple effect in the way we work. Boomers have accelerated the growing acceptance of working from home, adding to the millions of U.S. workers already showing up to work in their slippers. In addition, the ongoing corporate brain drain could mean that small businesses will be able to tap into the expertise of seasoned free agents at less-than-corporate prices—and that seniors themselves will become independent consultants to businesses of all sizes. 28

The growing numbers of Baby Boomer entrepreneurs has prompted some forward-thinking companies to recognize business opportunities in technology. At one time there was a concern that the aging of the population would create a drag on the economy. Conventional wisdom says that the early parenthood years are the big spending years. As we age, we spend less and, because Boomers are such a big demographic group, this was going to create a long-term economic decline. Not true, it now appears. The Boomer generation has built sizable wealth, and they are not afraid to spend it to make their lives more comfortable.

Minorities are also adding to the entrepreneurial mix. As we saw in Table 5.3 , minority groups and women are increasing business ownership at a much faster rate than the national average, reflecting their confidence in the U.S. economy. These overwhelming increases in minority business ownership paralleled the demand for U.S. Small Business Administration loan products. Loans to minority business owners in fiscal year 2017 set a record—more than $9.5 billion, or 31 percent, of SBA’s total loan portfolio. 29

The latest Kauffman Foundation Index of Startup Activity found that immigrants and Hispanic/Latino people have swelled the growing numbers of self-employed Americans in recent years, increasing the diversity of the country’s entrepreneurial class. Overall, minority-owned businesses increased 38 percent. The SBA notes that the number of Hispanic-owned businesses has increased more than 46 percent between 2007 and 2012. 30

How Far Will You Go to Get Rich?

With enough intelligence and determination, people can get rich almost anywhere in the United States. Whether you own chains of dry cleaners in Queens, car dealerships in Chicago, or oil wells in West Texas, fortunes have been made in every state in the Union. There are some places, however, where the chances of creating wealth are much greater than others. That is the reason why people who hope to strike it rich move to places such as Manhattan or Palo Alto. It’s not because the cost of living is low or the quality of life as a struggling entrepreneur is fun. Whether starting a software or soft-drink company, entrepreneurs tend to follow the money.

But not all companies follow the herd. Guild Education, founded in 2015 by Rachel Carlson and Brittany Stich at Stanford University, left San Francisco due to the high cost of living that could slow down the company’s growth. “We have a lot of women who are executives and department heads here, starting with myself and my cofounder,” CEO Rachel Carlson said. “So when we left, we deliberately chose a place where you can have a family.” 31 Guild Education’s mission is to help large employers offer college education and tuition reimbursement as a benefit to the 64 million working-age adults who lack a college degree.

Since moving to Denver, Guild Education has raised another $21 million in venture capital, bringing the total funding to $31.5 million with a company valuation of $125 million. 32 The company headquarters in Denver is next door to a Montessori school and employs 58 employees. “We were joking that we’re the polar opposite of Apple,” said Carlson. “Remember when the new ‘mothership’ came out? Every single parent noticed that it had a huge gym but not a day care.”

According to PwC’s quarterly venture capital study, “MoneyTree Report,” the top regions in the United States for venture-backed deals in the third quarter of 2017 were San Francisco ($4.1 billion), New York Metro ($4.2 billion), Silicon Valley (Bay Area $2.2 billion), and New England ($1.8 billion). 33

In 2017, equity financing in U.S. start-ups rose for the third straight quarter, reaching $19 billion, according to the PwC/CB Insights “MoneyTree Report Q3 2017.” “Financing was boosted by a large number of mega-rounds,” says Tom Ciccolella, Partner, U.S. Ventures Leader at PwC. 34 Twenty-six mega-rounds of $100 million in companies such as WeWork, 23andMe, Fanatics, and NAUTO contributed to the strong activity levels in the first three quarters of 2017. The top five U.S. industry sectors with the most deals and funding were Internet, Healthcare, Mobile and Telecommunications, Software (Non-Internet/Mobile), and Consumer Products.

• What significant trends are occurring in the small-business arena?
• How is entrepreneurial diversity impacting small business and the economy?
• How do ethics impact decision-making with small-business owners?

Summary of Learning Outcomes

Entrepreneurs are innovators who take the risk of starting and managing a business to make a profit. Most want to develop a company that will grow into a major corporation. People become entrepreneurs for four main reasons: the opportunity for profit, independence, personal satisfaction, and lifestyle. Classic entrepreneurs may be micropreneurs, who plan to keep their businesses small, or growth-oriented entrepreneurs. Multipreneurs start multiple companies, while intrapreneurs work within large corporations.

Successful entrepreneurs are ambitious, independent, self-confident, creative, energetic, passionate, and committed. They have a high need for achievement and a willingness to take moderate risks. Good managerial, interpersonal, and communication skills as well as technical knowledge are important for entrepreneurial success.

Small businesses play an important role in the economy. They account for over 99 percent of all employer firms and produce about half of U.S. economic output. Most new private-sector jobs created in the United States over the past decade were in small firms. The Small Business Administration defines a small business as independently owned and operated, with a local base of operations, and not dominant in its field. It also defines small business by size, according to its industry. Small businesses are found in every field, but they dominate the service, construction, wholesale, and retail categories.

After finding an idea that satisfies a market need, the small-business owner should choose a form of business organization. Preparing a formal business plan helps the business owner analyze the feasibility of his or her idea. The written plan describes in detail the idea for the business and how it will be implemented and operated. The plan also helps the owner obtain both debt and equity financing for the new business.

At first, small-business owners are involved in all aspects of the firm’s operations. Hiring and retaining key employees and the wise use of outside consultants can free up an owner’s time to focus on planning, strategizing, and monitoring market conditions, in addition to overseeing day-to-day operations. Expanding into global markets can be a profitable growth strategy for a small business.

Because of their streamlined staffing and structure, small businesses can be efficiently operated. They have the flexibility to respond to changing market conditions. Small firms can serve specialized markets more profitably than large firms, and they provide a higher level of personal service. Disadvantages include limited managerial skill, difficulty in raising capital needed for start-up or expansion, the burden of complying with increasing levels of government regulation, and the major personal commitment that is required by the owner.

The Small Business Administration is the main federal agency serving small businesses. It provides guarantees of private-lender loans for small businesses. The SBA also offers a wide range of management assistance services, including courses, publications, and consulting. It has special programs for women, minorities, and veterans.

Changes in demographics, society, and technology are shaping the future of entrepreneurship and small business in America. More than ever, opportunities exist for entrepreneurs of all ages and backgrounds. The number of women and minority business owners continues to rise, and older entrepreneurs are changing the small-business landscape. Catering to the needs of an older population and a surge in web-based companies fuel continues technology growth. Entrepreneurs typically follow the money and set up shop in places where there is venture capital money easily available.

Preparing for Tomorrow’s Workplace Skills

• After working in software development with a major food company for 12 years, you are becoming impatient with corporate “red tape” (regulations and routines). You have an idea for a new snack product for nutrition-conscious consumers and are thinking of starting your own company. What entrepreneurial characteristics do you need to succeed? What other factors should you consider before quitting your job? Working with a partner, choose one to be the entrepreneurial employee and one to play the role of his or her current boss. Develop notes for a script. The employee will focus on why this is a good idea—reasons they will succeed—and the employer will play devil’s advocate to convince him or her that staying on at the large company is a better idea. Then switch roles and repeat the discussion. (Information, Interpersonal)
• How did you research the feasibility of your idea?
• How did you develop your vision for the company?
• How long did it take you to prepare your business plan?
• Where did you obtain financing for the company?
• Where did you learn the business skills you needed to run and grow the company?
• What are the most important entrepreneurial characteristics that helped you succeed?
• What were the biggest challenges you had to overcome?
• What are the most important lessons you learned by starting this company?
• What advice do you have for would-be entrepreneurs?
• A small catering business in your city is for sale for $250,000. The company specializes in business luncheons and small social events. The owner has been running the business for four years from her home but is expecting her first child and wants to sell. You will need outside investors to help you purchase the business. Develop questions to ask the owner about the business and its prospects, as well as a list of documents you want to see. What other types of information would you need before making a decision to buy this company? Summarize your findings in a memo to a potential investor that explains the appeal of the business for you and how you plan to investigate the feasibility of the purchase. (Information, Interpersonal)
• Research various types of assistance available to women and minority business owners. Call or visit the nearest SBA office to find out what services and resources it offers. Contact trade associations such as the National Foundation for Women Business Owners (NFWBO), the National Alliance of Black Entrepreneurs, the U.S. Hispanic Chamber of Commerce, and the U.S. Department of Commerce Minority Business Development Agency (MBDA). Call these groups or use the internet to develop a list of their resources and how a small-business owner could use them. (Information, Interpersonal, Technology)
• Do you have what it takes to be an entrepreneur or small-business owner? You can find many online quizzes to help you figure this out. The Success website offers a quiz to determine whether you have an entrepreneurial mindset at https://www.success.com. What did your results tell you, and were you surprised by what you learned? (Information, Technology)

Team Activity: Your class decides to participate in a local business plan competition. Divide the class into small groups, and choose one of the following ideas:

• A new computer game based on the stock market
• A company with an innovative design for a skateboard
• Travel services for college and high school students

Prepare a detailed outline for the business plan, including the objectives for the business and the types of information you would need to develop product, marketing, and financing strategies. Each group will then present its outline for the class to critique. (Information, Interpersonal, Systems)

Ethics Activity

As the owner of a small factory that makes plastic sheeting, you are constantly seeking ways to increase profits. As the new year begins, one of your goals is to find additional funds to offer annual productivity and/or merit bonuses to your loyal, hardworking employees.

Then a letter from a large national manufacturer of shower curtains seems to provide an answer. As part of a new “supplier diversity” program it is putting in place, the manufacturer is offering substantial purchase contracts to minority-owned suppliers. Even though the letter clearly states that the business must be minority owned to qualify for the program, you convince yourself to apply for it based on the fact that all your employees are members of racial or ethnic minorities. You justify your decision by deciding they will benefit from the increased revenue a larger contract will bring, some of which you plan to pass on to them in the form of bonuses later in the year.

Using a web search tool, locate articles about this topic, and then write responses to the following questions. Be sure to support your arguments and cite your sources.

Ethical Dilemma: Is it wrong for this business owner to apply for this program even though it will end up benefiting his employees as well as his business?

Working the Net

• Visit Sample Business Plans at http://www.bplans.com to review examples of all types of business plans. Select an idea for a company in a field that interests you, and using information from the site, prepare an outline for its business plan.
• Find a business idea you like or dislike by searching the web. Explain why you think this is a good business idea or not. List additional information the entrepreneur should have to consider for this business, and research the industry on the web using a search engine.
• Evaluate the export potential of your product idea at the Small Business Exporters Network website. Explore three information areas, including market research, export readiness, and financing. Select a trade link site from government, university, or private categories. Compare them in terms of the information offered to small businesses that want to venture into overseas markets. Which is the most useful, and why?
• Explore the SBA website at http://www.sba.gov . What resources are available to you locally? What classes does the Learning Center offer? What about financing assistance? Do you think the website lives up to the SBA’s goal of being a one-stop shopping resource for the small-business owner? Why or why not?
• You want to buy a business but don’t know much about valuing small companies. Using the “Business for Sale” column available online at http://www.inc.com , develop a checklist of questions to ask when buying a business. Also summarize several ways that businesses arrive at their sale price (“Business for Sale” includes the price rationale for each profiled business).

Critical Thinking Case

Fostering entrepreneurship in “innovation deserts”.

You may have heard of food deserts or Internet deserts—those places where groceries or online access are difficult to come by. But certain communities fall into similar “innovation deserts,” where the population is cut off from educational, technical, and other resources connected to small business and entrepreneurial success. Often coinciding with economically distressed locations, innovation deserts force residents to look elsewhere for opportunities and support, causing both a talent and economic drain that exacerbates the problem.

Felecia Hatcher has committed herself to ridding communities of these deserts. A self-described C-student in high school, she found creative ways to achieve and finance her education and early career. As a freshman at Lynn University, she launched a company focused on mentoring high school students. Upon graduating, she went on to lead social media campaigns for major brands such as Nintendo, Sony, Microsoft, and Little Debbie. Soon after, she landed a major position with the Minnesota Lynx of the WNBA. She left it to start an ice cream company.

That company, Feverish Ice Cream, went from a small food truck and cart operation to a venture capital–backed promotional partner to some of the biggest brands in the world. Her success—and the financial resources it provided—enabled Felecia to pivot once again.

In 2012, Hatcher started Code Fever, an organization focused on teaching Miami residents how to integrate technical knowledge into their skillset. Soon after, Hatcher and her partners brought Black Girls Code to Miami, and hosted numerous camps and events for local youth. In 2015, they started Black Tech Week to further the cause of creating inclusive innovation communities. The conference hosted several thousand attendees and some of the nation’s top entrepreneurs, venture capitalists, educators, and tech professionals.

The following year, Hatcher’s organizations further expanded their entrepreneurship programs. They began a VC-in-residence program to connect Black innovators with potential mentors and investors. They also partnered with PowerMoves to launch bootcamps and pitch competitions. Black Tech Week soon expanded from Miami to eight other cities.

Like many communities in South Florida, the Overton section of Miami was an innovation desert. Social mobility was relatively low, and potential entrepreneurs had few support networks or resources. Even though Miami was the nation’s densest city for co-working spaces (seen as particularly helpful for start-ups), Overton didn’t have one. Hatcher sought to directly fill the gap by opening a co-working space named a Space Called Tribe. The two-story hub offers individuals or small companies low-cost access to WiFi, office space, conference rooms, collaboration opportunities, and a wide array of workshops and guest speaker events. Even though members are from different companies serving different industries and customers, their shared experience can create networking and support relationships.

Felecia Hatcher and her group recently rebranded to The Center for Black Innovation; beyond the services and events described above, they work as a think tank and advocacy organization to further promote investment and innovation in the Black community, and better help all marginalized communities. During the COVID-19 pandemic, they launched a number of educational programs to help those affected launch “side hustles” to supplement their income. The Center also continues to serve as an incubator and capital investment networker to help people develop and scale their start-ups. And after helping thousands of business people, the Center frequently collaborates with past participants to mentor new ones and continue the cycle of innovation.

• What qualities or characteristics might lead to the emergence of an innovation desert? Is it always a geographical definition, or could it be defined in other ways?
• In her efforts to help marginalized people gain technical and business experience, how was Felecia Hatcher’s progression similar to business growth and grand expansion?
• How might a Space Called Tribe and the larger efforts of the Center for Black Innovation lead to opportunity for local entrepreneurs?

Sources: Center for Black Innovation website, https://www.centerforblackinnovation.org/#what-we-do ; Felecia Hatcher-Pearson, “Ridding Communities of Innovation Deserts,” Impakter, September 5, 2019, https://impakter.com/ridding-communities-of-innovation-deserts-how-corporations-and-governments-can-support-black-communities-innovation-potential/ ; Blair Levin and Larry Downes, “Cities, Not Rural Areas, Are The Real Internet Deserts,” Washington Post, September 13, 2019, https://www.washingtonpost.com/technology/2019/09/13/cities-not-rural-areas-are-real-internet-deserts/ ; Rob Wile, “In a long-neglected Miami neighborhood, a new co-working space stirs to life,” Miami Herald, May 30, 2018, https://www.miamiherald.com/news/business/technology/article212112389.html;

Hot Links Address Book

• Do you have a great business idea? Taking the quiz at http://www.edwardlowe.org , the Edward Lowe Foundation’s website, will help you determine how feasible the idea is.
• Do you have what it takes to become an entrepreneur? Take the quiz at https://www.entrepreneur.com/article/247560 to find out.
• Before your business travels to foreign shores, pay a visit to the SBA’s Office of International Trade to learn the best ways to enter global markets at https://www.sba.gov/offices/headquarters/oit/resources .
• How can you find qualified overseas companies to buy your products? Find out how BuyUSA.com can help you become part of an e-marketplace at http://www.buyusa.com .
• If you are considering starting a business at home, you’ll find tips and advice at the American Association of Home-Based Businesses website at http://www.aahbb.org .
• To learn about the services the U.S. Department of Commerce’s Minority Business Development Agency provides for small-business owners, check out http://www.mbda.gov .

Let’s Test Your Knowledge

Introduction to Business Administration Copyright © 2022 by LOUIS: The Louisiana Library Network is licensed under a Creative Commons Attribution 4.0 International License , except where otherwise noted.

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Published on: 02/03/2023

6 Risks of Entrepreneurship (and How to Manage Them)

Author: Avidian Wealth Solutions

Entrepreneurship is a rewarding and fulfilling journey, but one that can also be fraught with risk. Nothing is guaranteed when starting a business, there is always the potential for failure and the looming financial risks, but the personal risks of entrepreneurship should also be considered, which can include stress, burnout, and the risk of losing personal assets if the business fails. 

To mitigate these risks, entrepreneurs and small business owners alike must have an understanding of the common pitfalls that come with a start-up as well as how to overcome them. In this article, the high-net-worth wealth managers from Avidian Wealth Solutions will explore the most common risks associated with entrepreneurship and provide strategies for planning for them.

What are the risks of entrepreneurship?

There are numerous types of risk in entrepreneurship, but the most common ones include financial risk, legal and regulatory risk, market risk, customer or user risk, competitive risk, and operational risk. Understanding each of these types of risk is essential for developing a successful business strategy and mitigating potential losses.

1. Financial risks

Financial risks are one of the most common and potentially damaging risks of entrepreneurship as they include the potential for losses due to mismanagement or poor decisions when allocating funds or managing expenses. This type of risk can be especially damaging to new businesses, as a lack of financial resources or an inability to accurately forecast future costs can quickly lead to bankruptcy. 

To mitigate financial risks, entrepreneurs must have a thorough understanding of their finances and develop strategies for budgeting, forecasting cash flow, and minimizing unnecessary expenditures. Additionally, having access to capital in case of emergency can help protect against unexpected events or downturns in business activity.

2. Legal and regulatory risks

One of the most overlooked risks of starting a new business is legal and regulatory risk. This type of risk can arise from a lack of knowledge or understanding of relevant laws, regulations, and industry standards. 

Not only can this lead to costly fines or penalties, but it can also put entrepreneurs at a competitive disadvantage if they are not up-to-date on their regulatory obligations. Not to mention that failing to comply with applicable laws could result in personal liability for the business owner. 

To mitigate legal and regulatory risk, entrepreneurs and business owners must have an understanding of all relevant laws and regulations that apply to their business operations as well as any potential changes that may come into effect in the future. By staying informed and developing processes for compliance monitoring, entrepreneurs can protect themselves from costly mistakes related to legal issues.

3. Market risks

Market risks are an unavoidable part of entrepreneurship. These risks can arise from external factors such as changes in the economy, shifts in consumer preferences, or even competition from other businesses. 

It is essential for entrepreneurs to understand these potential market risks and develop strategies for mitigating them. By developing a thorough understanding of their target market and staying up-to-date on industry trends, business owners can minimize their exposure to costly losses due to unexpected developments or changing customer needs. 

As is the case when accounting for financial risks, having access to capital reserves can help protect against market risks, so that your business can survive sudden downturns in sales due to disruptions within the market. With careful planning and risk management strategies, entrepreneurs can take the steps necessary to be prepared for any event within a competitive and volatile marketplace.

4. Customer or user risks

Customer or user risks can arise from a lack of understanding of customer needs, poor customer service, or inadequate product offerings. As entrepreneurs strive to build successful businesses, they must ensure that their products and services meet the needs and expectations of their ideal customers. If these expectations are not met, it can lead to dissatisfied customers who may choose to take their business elsewhere. 

Additionally, entrepreneurs must also be aware of potential user risks such as data breaches or privacy violations which could negatively impact consumer trust in their brand. 

To mitigate these types of risk in entrepreneurship, business owners should develop strategies for anticipating customer needs and developing secure systems for protecting sensitive data and information. 

5. Competitive risks

No matter what industry you’re in, there is always the risk of potential competition from other businesses, as well as changes in the economy or shifts in consumer preferences that could affect business operations.

To mitigate competitive risks, entrepreneurs must have a thorough understanding of their target market and stay up-to-date on industry trends to ensure that they remain competitive within the marketplace. By staying informed about changing customer needs, and doing regular analysis of competition, entrepreneurs can minimize their exposure to costly losses due to encroaching competition or changing customer demands.

6. Operational risks

Operational risks can arise from a variety of issues such as inadequate processes, lack of resources or expertise, or inefficient management practices. 

When operational risks are not managed properly, they can lead to costly mistakes which could have serious consequences for the business. To mitigate operational risk, entrepreneurs must understand all relevant laws and regulations that apply to their operations as well as develop strategies for monitoring compliance with these requirements. They would also benefit from hiring a strong team of advisors and executives who can help inform their decisions.

How can entrepreneurs prepare for risk?

When it comes to preparing for the risks of entrepreneurship, ask yourself one important question, how will you manage the financial risks your business faces?

Entrepreneurs can prepare for risks by developing comprehensive risk management strategies that anticipate potential issues and develop plans for mitigating them. This includes researching the market thoroughly, understanding applicable laws and regulations, staying informed about industry trends, and establishing a formal succession plan or exit plan . 

Even small businesses need to be aware of many types of risk, and should have a family office risk management specialist, or a trusted financial advisor, to ensure that the appropriate risk management strategies are being deployed.

Plan for and mitigate the risks of entrepreneurship with the wealth managers at Avidian Wealth Solutions

Founder risk in entrepreneurship is inevitable, but by taking proactive steps towards anticipating and mitigating risks, entrepreneurs can protect themselves from costly losses due to unpredictable markets or shifting customer demands.

The best way to plan for the risks of entrepreneurship is to partner with the multidisciplinary team of experienced advisors from Avidian Wealth Solutions. Avidian is a Houston-based wealth management firm offering high-net-worth entrepreneurs, founders, and small business owners financial services including everything from small business retirement planning to succession financial planning .

To learn more about how we help businesses plan for and mitigate financial risks in their business, schedule a consultation with us today!

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Entrepreneurial Risks And Its Types

The business environment is dynamic. Despite all the planning and risk management, some unforeseen situations expose businesses to several risks….

The business environment is dynamic. Despite all the planning and risk management, some unforeseen situations expose businesses to several risks. A businessman doesn’t follow a unique or original path. An entrepreneur, who creates their own path, comes up with an invention to introduce an entirely new product, or they bring innovation to existing ones. There are a number of risks involved in entrepreneurship . One of the most common risks that entrepreneurs take is leaving a stable job to pursue their dream of carrying out a successful business. Therefore, compared to businessmen, entrepreneurs are exposed to different types of entrepreneurial risks . This is the reason why entrepreneurs in general are considered risk-takers.

Examples Of Risk-Taking Entrepreneurs

Types of entrepreneurial risks.

Jeff Bezos, founder of Amazon, left a high-paying job in the 1990s to initiate his entrepreneurial journey. Oprah Winfrey managed to overcome her personal struggles of having an impoverished childhood and became a pivotal figure in the multimedia industry.

There are various types of risks faced by entrepreneurs from the beginning of their entrepreneurial journey till their idea finally turns into a successful venture. The following are the different types of entrepreneurial risks:

Financial Risk

Strategic risk, technology risk, market risk, compliance risk, reputational risk, operational risk, competitive risk.

Appropriate entrepreneur risk management is crucial to success. Each step taken should involve adequate research and planning so that an entrepreneur takes calculated risks. This would prevent them from failing. Harappa’s Leading Self course will enable budding entrepreneurs to anticipate and judge entrepreneurial risks better. It will increase an entrepreneur’s chance of success without risks. Check it out now!

Explore Harappa Diaries to learn more about topics such as Risk Assessment Procedure, What is Business Agility , Tips For Taking Calculated Risks and How To Develop A Risk Management Plan to advance in your career.

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5 Ways to Minimize Early-Stage Business Risk Taking smart chances can help fast-track your startup without exposing your fledgling company to unnecessary dangers.

By Abdo Riani • Jan 11, 2019

Opinions expressed by Entrepreneur contributors are their own.

Entrepreneurship and risk go hand in hand. After all, entrepreneurship is about creating solutions that fill a need -- and no human ever has created something without testing, trial and error. The very act of starting a business demands you assume the risk of failure in various forms: insufficient cash, lower-than-anticipated market need, fierce competition and challenges that threaten to shift your focus.

Most entrepreneurs believe the gamble is worth the compromise, if it means controlling their own destinies, setting their own schedules and changing people's lives. Fortunately, business owners can mitigate risk by taking smart, carefully calculated steps. Here are five simple, proven ways to minimize exposure during your startup's early stages.

1. Focus on delivering value for cash.

How do you prepare for a successful business launch? If you're like most entrepreneurs, you might lay the foundation by building a website or an app, reading a few books and taking courses to fill in your knowledge gaps.

But here's the truth: Right this moment, people are ready to pay you for solving their problems. Web presence, product development and personal education are important, but you can accomplish those tasks while you serve customers.

Here's proof, from my own experience. My first startup venture rewarded users for their eco-friendly actions. I spent eight unsuccessful months fundraising for product development. Then I switched my focus to creating value. I put my energy into doing things that don't scale. Instead of building an application, I became the product: I helped users find the nearest recycling facility and connected them with the best local reward providers so they could redeem their points. This shift helped me build the recognition and traction I needed to raise my target amount amount through presales -- and without a product.

Related: Landing Your First Customers

You can apply the same idea to service-based businesses such as coaching, consulting, course creation and marketing. Monetize your skill quickly by conveying your value proposition to your ideal customer. To get the most bang for your hard-fought bucks, identify the ideal viable marketing channel to carry the message. Depending on your model and your market, that might be social media, email, joint ventures or something else entirely.

Selling first allows you to delay the biggest expenses -- those product-development dollars. It minimizes risk while generating revenue for investment in later stages.

2. Align your skills with the product or service.

Entrepreneurs are constantly tempted to explore shiny ideas with growth potential. Most of the time, those ideas require additional skills. Consider the common comparison of technical and nontechnical founders. An entrepreneur with programming knowledge and skills can create a product's early versions by investing one resource: time. Time is money, to be sure, but it's a variable you can control. On the flip side, a nontechnical founder must invest both time and money to build a technology startup. This significantly increases business risk, especially in a market where more than 90 percent of startups fail .

Related: Do You Have 'Shiny Object' Syndrome? What It Is and How to Beat It.

When you align human capital with the solution, you can test, iterate and pivot quickly without incurring expenses. The best way to launch a business that requires complementary skills is to offer it as a service. Companies such as Basecamp and MailChimp began by offering product-development, design and marketing services before introducing scalable technologies. Those initial phases allowed the two companies to gain a deep understanding of customer needs, generate revenue and build stronger foundations for the future.

3. Keep a stream of income.

If you focus on leveraging your skills to quickly deliver value for cash, you won't have to keep your day job for very long. In the meantime, though, think of your steady gig as your insurance. Quitting requires some planning.

First, define a target for the monthly, recurring business revenue that will provide you with enough security to dive in full-time. Multiply this number by a minimum of three months. This will help you test your model's stability and make a more confident decision.

Some people prefer to run a business on the side. If you're one of them, you can follow the same strategy to plan your first hire. Allocate your limited time to tasks that only you can perform or to which your personal touch adds the most value. Freelancers with different roles can help you run and grow your business as remote workers.

Related: Why You Shouldn't Quit Your Job to Start a Business

4. Surround yourself with mentors.

Many entrepreneurs are skeptical about mentor relationships or perhaps skittish about how to start the process. Consider this balance between upfront and lifetime expenses as a chance to evaluate opportunity costs. A good mentor can help you avoid mistakes, choose the right path and accelerate your progress toward your goals. According to MicroMentor, entrepreneurs guided by mentors see greater revenue growth (83 percent compared to 16 percent) and are more likely to survive.

The alternative -- going it alone, with just your own knowledge -- is a viable option, but it can prove very costly in terms of time and money.

Today's resources offer a welcome middle ground. Many communities and websites can provide guidance in best practices as well as link you to a support network that offers both interaction and education. My own venture, Startup Circle , exists to give passionate entrepreneurs an opportunity to connect with and learn from successful founders at live online events.

If you're like most entrepreneurs, you're endlessly curious. Put that trait to work by asking to interview a recognized voice in your field. Platforms such as Zoom, YouTube and Facebook give you the tools you need to feature a guest inexpensively and without a need to justify the interview. Experts like to be experts. Show a genuine interest to listen, highlight their experience and spread the influence of their knowledge. Often, your authentic attention is enough to grab theirs. Every interview is an opportunity to ask questions and connect with a new leader.

Related: 7 Reasons You Need a Mentor for Entrepreneurial Success

That's precisely what I had in mind when I organized and hosted the Bootstrapping Summit . The event attracted more than 100 successful entrepreneurs -- each of whom amplified the message through her or his network. In a similar vein, Startup Circle allows me to gain (and share) access to experts with different skills and from varied backgrounds.

5. Avoid unnecessary expenses.

You'll find no shortage of ways to significantly increase business risk without boosting your success rate. Common pitfalls include renting unneeded office space, investing in product development or advertisement without careful validation, building a team too soon and borrowing money.

Instead, start from home or in a coworking space. The latter could make it possible to split the cost of shared-function employees or freelancers with other business owners -- in turn minimizing overhead and helping you find volunteers. Coworking also enables you to exchange products and services or cultivate promotional partnerships with like-minded entrepreneurs.

Above all, build one thing at a time. Diversification is a smart move in finance courses, but it can be disastrous as a business-building strategy. Running many projects at the same time only will hinder your performance. Even if you manage to keep ahead of expenses, you'll end up as a jack of several trades and a master of none.

Related: 9 Business Expenses You Can Reduce or Eliminate to Save Thousands

Entrepreneur Leadership Network® Contributor

Founder and CEO of VisionX Partners

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