Any successful entrepreneur will tell you that in order for your startup to be a success, you have to commit to it wholeheartedly and singularly, with a sense of eternal optimism for your potential.
Yet when questioned further, that same entrepreneur would likely admit to the tremendous risk involved in starting a new venture. Even if you have a great idea and a plan to match, not all businesses succeed.
Complicating your decision is the issue of giving up your current career. If you’re already on a successful (though perhaps limiting) trajectory, is it worth risking that moderate success to reach for something bigger?
To identify whether it’s a good idea to let go of your current career in favor of starting a business, you first have to determine what risks would be involved in your business venture.
Inc.com contributor Dr. Jay Ebben explains three major risk factors that all entrepreneurs must analyze before making the decision to launch a new business.
Business Model Risks
No venture is a sure thing, but you can project how your startup will do by analyzing the market, the operational model, and the financial model.
Analyzing the market will help you determine the competition’s hold on your customer base, and trends within the industry as a whole. You’ll need to take into account any regulatory restrictions that may affect your business plan. Ebben uses a cigar lounge as an example, pointing out the potential impact of anti-smoking laws.
Also determine the size and location of your customer base to determine whether you can adequately serve the needs of your target market.
Starting a business will also come with operational risks, as you’ll need certain capital and technology in order to deliver your goods and services. If your company is product based, do you have the facilities to manufacture and assemble the goods? This can be difficult to set up in terms of cost and quality control. Keeping costs in line will be essential to your success.
Finally, there will be risks due to the uncertainty of your financial model. There is always the possibility that your business won’t work simply because of the numbers. For any business model, you should create a projected financial analysis to identify potential pitfalls and determine where you may break even. Understand what factors affect cost and revenue and take these into account when generating your business model.
Risk of Business Failure
The unfortunate reality is that not all businesses survive and thrive. With every new venture, there is the possibility that you could pour your time, money, and effort into something that just doesn’t work out for one reason or another. This presents both financial and opportunity risks.
If you leave your current career to pursue a new business and then your business fails, you lose any benefits you could have gained from your career or from another path. Only you can consider the benefits of your current gig and whether those benefits are worth giving up for the potential of something better.
The bigger risk from business failure is the tangible financial risk. It’s likely that you’ll have to put significant personal savings into your business, and you may also have to provide a personal guarantee or collateral if you need a business loan. Depending on the scale and cost, financial fallout from a failed business can follow you for life, so consider how much it will cost to start your business and whether you can afford to risk the financial assets necessary to give your new venture a go.
3. Psychological risk
Less tangible but equally or even more significant, entrepreneurs face significant psychological risks associated with the challenges and loneliness of starting a business. Studies show that many entrepreneurs may experience anxiety and depression as a result of their business venture.
Owning a company is an incredibly stressful job that requires most of your personal time and endurance, and when your personal assets are on the line, you may experience tight times where your risks don’t always pay off.
Mitigating the Risk Factors
If all of this risk seems overwhelming, there are a few options you can consider to minimize the risk associated with starting a business.
Consider a Partnership
If creating your own business seems daunting, consider partnering up. There are tremendous benefits to creating a partnership, not the least of which are a touch of financial security and peace of mind. You may also appear more fundable to investors who see that two strong minds have joined to support one brainchild.
Working with a business partner can also help you to improve your business model . When working alone, it’s easy to get caught up in your own ideas and not see the flaws in your plan objectively.
Partnering up can also help you to avoid the psychological risks of anxiety and depression that may more likely arise when you go it alone.
Keep in mind, though, that a business partnership is like a marriage. It is long lasting and has to weather the intense ups and downs of business ownership. Before committing to a partnership, make sure that you’ve chosen the right person and fully clarified both parties’ expectations and responsibilities for the venture.
Purchase a Business Instead of Starting New
If starting a brand new business feels like too much risk, consider investing your time and money into a venture that has already recognized success.
Although the startup cost of purchasing an established business can be significant, doing so provides more predictable cash flow, more immediate returns, and better work-life balance than starting a business from scratch.
Keep Your Day Job
If you do decide to start a business, most professionals and analysts will offer this common advice: keep your day job.
Yes, the combined workload will be daunting. But the safest way to ensure a modicum of financial security is to stick with your full-time job and dedicate your remaining time to your entrepreneurial dream.
Even the best new business models are wrought with uncertainty. By hanging on to an alternate source of income while you pursue your business venture, you have the opportunity to test the entrepreneurial waters without risking your livelihood.
So keep that day job longer than you want to and pinch pennies as much as possible. Recognize opportunity, but ultimately your personal and business financials will tell you when it’s time to move all your eggs into the entrepreneurial basket.
The entrepreneurial lifestyle isn’t for everyone. Some people prefer the security and predictability of an established 9-5 job. But if you’re interested in expanding your horizons, taking charge of your livelihood, and controlling your own destiny, striking out on your own may be the best bet you ever make.
Photo Credit: David Mulder/Creative Commons