Upside/Downside: Reward and Risk
Conventional wisdom is that starting a company is an extremely risky proposition. Data from many sources show that a high percentage of new businesses in the United States fail within the first few years. These statistics put fear in the heart of anyone thinking about launching an enterprise. I urge you not to be too concerned; it’s not as bad as many people seem to think. In fact, the odds can really be quite good.
First of all, the above quoted data includes all startups: corner grocery stores, gasoline stations, trendy restaurants, and similar businesses that have a notoriously high attrition rate. Conclusion: Avoid these businesses entirely and your chances of surviving will increase dramatically.
Secondly, many people starting businesses are doomed almost before they begin because of poor initial strategy. The most frequent error, in my view, is to select an offering (either product or service) that is distinguished from competitors only by price. Instead, if you find ways to concentrate, differentiate, and innovate in every aspect of the business rather than selling price alone, the odds of success will be better.
Risks and rewards come in many forms. The most obvious are financial, but for many entrepreneurs the financial issues are of less importance than others. The two I want to discuss first are professional and emotional. What different people consider acceptable risk will vary substantially. More things than money must be considered.
The professional rewards of starting a company and succeeding are obviously very great and do not need further discussion.
The most important professional risk of starting a business and failing is the possibility of suddenly becoming unemployed. The question to ask is how two or three years of managing an unsuccessful startup company would compare to the same two or three years with your former employer when it comes to reentering the job market. My belief is that the broad experience and extensive contacts that come with being the head of a company, even though it fails, would make it easier to find a job. If this is true, or even almost true, it means that the professional risks of starting a company are low.
Emotional risks and rewards are another matter-the rewards can be very great but the risks may also be great both for you and your family. Let us look first at the reward side. I started a company from scratch. We had two employees in addition to the four founders. Eight years later, at the time of our merger with Harris Corp., RF employed about 800 people; today it is closer to 1,200. Most of these employees have a spouse and children. There is a multiplier on top of these when you consider the company’s supplier and merchants in the community where our employees spend their income. All-in-all I estimate that the company I started in a basement supports 10,000 to 12,000 people in the Rochester area. Is this an emotional reward? You better believe it is!
Starting RF Communications was financially rewarding to the founders. My living standard and lifestyle moved upward considerably but not nearly as far as my income, so suddenly I had resources available for other purposes. As a result of the success of RF Communications I was able to donate an athletic field to each of the two private high schools my children attended plus a dozen or so scholarships that will help other young people get a similar education.
On the downside the emotional risks associated with starting a business can be great whether the business succeeds or fails. Consider how your complete dedication to and immersion in the new venture will affect your marriage and family. When you spend every waking hour dealing with business problems it may not leave much emotional energy to deal with family problems. Are your spouse and children prepared and able to make the emotional investment needed for you to start a business? If you venture goes down, will you be able to prevent your marriage and family from going down as well?
These are scary questions that deserve a lot of attention. While the emotional rewards of entrepreneurship can be very great, so can the risks. Each person must assess whether and how they can handle these.
In addition to these two areas, where the risks and rewards must be carefully balanced, there is a long list of others where only reward is possible and the risk is zero. These include things such as the wish to be your own boss, the desire to be involved in all aspects of the business, getting away from the politics, red tape, and bureaucracy of the large company, and many more. If these things are important to you, and they usually are, there is only an upside.
The above discussion covers many issues but it does not cover many other important ones that may determine whether the new business succeeds or fails, such as: writing a business plan, picking products and markets, controlling cash flow, getting orders, and many others. These are addressed in other parts of this Web page or in books, such as mine, which spend many chapters covering these other issues.
Excerpted with permission from Start Up: An Entrepreneur’s Guide to Launching and Managing a New Business, – 1999 by William J. Stolze.