How Risky is Starting a Business?

I encounter many potential entrepreneurs who struggle with a dilemma: they have a great idea for a business but believe launching a business is too risky. Many have a current job or are students seeking a degree in a profession. What they find agonizing is the perceived potential to generate wealth for themselves and their community through the launch of a new business; but they firmly believe only a few people who attempt to launch a business succeed. “If only starting a business was not so risky, I would be launching it today” is the lament I often hear.

This lament of “risk” associated with launching a business not only comes from those who are successful at a career, but those who are trying to complete college and use their diploma as a launch into the world of “career building”. I can certainly feel their pain, but I have little understanding of how they calculate risk.

Here are some simple facts. A college graduate today can expect over 25 significant career changes before they retire according to the most recent reports by college career counselors. And it is correct to assume many of those changes will not be voluntary. Corporate America has spent the last three decades downsizing their workforce despite thriving in the largest and longest economic growth cycle in modern world history. Seventy-five percent of all new jobs created in the economy are by small businesses. Approximately 55% of the new businesses launched in 2012 are operating today. Twelve percent of the entire adult population in the United States is currently working on launching or have launched a new business. About 90% of them have a full-time job while working on their business launch.

So what exactly is the nature of the risk between these two paths? The one path relies on someone else to decide if you are worthy of a salary in any given month. The second path relies on the individual to generate their own salary through their own initiative and skills. The corporate world, quite frankly, is a job killer and with the recent recession has increased its pace of downsizing which started picking up momentum in the early 1990s. New businesses not only create the jobs of today, but the jobs of the future and they do so with greater opportunities today than existed ten years ago. Thanks to continuing advances of the information revolution.

With tongue in cheek, I often talk about the “great corporate conspiracy” which must have taken place shortly after World War II. The conspiracy goes something like this. After the war, opportunities by corporate giants to expand globally were quite apparent. However, America was still a strong entrepreneur-oriented country. People were expected to find ways to create new and interesting products, and if fortunate, would be rewarded handsomely for their efforts. But if the nation’s young chose to launch their own businesses instead of joining the ranks of corporate America, the opportunities to expand would be thwarted. Thus, the push to convince our youth the only acceptable (and low risk!) choice to make was to get a diploma and launch a career. And indeed, it worked!

It worked so well, few people give much weight to starting a business as a viable choice in preparing to enter the work world after World War II. Many parents today (the first products of the conspiracy) are major obstacles by continuing to advise their children on what career paths they should consider while never mentioning the dreaded E word. And somewhere during the past 50 years, the myth “80% of all new businesses fail in the first several years” took hold though it is patently false and untrue. In fact, the chances of success are quite high with recent studies showing over 1 out of 2 businesses remain active five years after their launch. And those numbers do not count companies having been acquired or merged.

While a conspiracy is highly unlikely, it is true our society for the past 50 years has undermined the entrepreneurial spirit by suggesting launching a business is too risky. A spirit for over 200 years was the backbone of the American economy and in sync with the spirit of America: freedom, self-determination, and the opportunity to generate wealth for oneself based on one’s talents, knack, and initiative.

So which path is where the real risk takes place? A career path will lead to downsizing, firing, and layoffs? Or one resulting in the failure of an idea? Would you rather be the individual who loses their job because of a “business decision” made by others or lose a business effort because the idea was not adequately received by the market place?

I would contend the person who will be more adept and with greater skills is the failed entrepreneur over the failed employee. The failed entrepreneur will always have the skills to reenter the workforce. Or take on a new entrepreneurial challenge with greater knowledge on how to bring an idea to marketplace. The career employee is only left with skills to seek employment at another company with the hope the next downsizing, layoff, or firing will not come too soon.

And consider this. If you get really good at your career, you may bring in a six figure salary. If you get really good as an entrepreneur you may bring in a nine figure equity ownership.

When it comes to risk, I will always bet on the entrepreneur who bets on him or herself.