Control – Employees are “at the mercy” of their employers and/or the owners of their company while entrepreneurs have a high degree of control (and of course more responsibility) in controlling their own destiny.
Money – Entrepreneurs typically need to risk not just their time and effort but their own money in order to get their business off the ground while employees typically will not need to risk any of their own money as an investment (for the sake of this discussion we will leave stock options, sales commissions, and other performance based employee pay systems out of this comparison because while not an investment of employee money per se it does involve a different level of risk).
Granted we could spend a lot of time delving into the specifics of each of the two areas but I believe that it is fair to say that the two main differences in risk between the “Entrepreneur Profession” and the “Employee Profession” could be characterized nicely as differences in the general categories of control and money.
Managing and Minimizing Entrepreneurial Risk
As any student of Finance 101 knows within the first week of class, “Generally speaking, the greater the risk the greater the potential reward”. So the goal in becoming an entrepreneur is not to eliminate risk which is for the most part impossible but to manage and minimize the risk so that the risk is appropriate to your specific situation and that you have positioned yourself in an entrepreneurial undertaking that has an acceptable risk/reward relationship to you.
Here are some concrete principles that may help you both minimize and manage the risk that is inherent in any entrepreneurial endeavor:
Save Money by Funding Yourself – “Fund Yourself” is a term that is sometimes called “Bootstrapping” and essentially means that rather than betting the farm to invest all of your nest egg into a business idea (or rather than spending a ton of effort trying to raise money from investors) see what you can do to get your idea to the market as cheaply as possible. Sure, you will have to spend some of your money but budget wisely with the goal being to get the idea to market and test out market demand for your product or service. Yes, blowing all of your nest egg into a hare brained business idea can be labeled as bootstrapping but strive to “bootstrap” as wisely and cheaply as possible so that you can gauge market demand and then iteratively make improvements (or if the idea is a dud then you can simply come up with another idea and be thankful that your budgeting allowed you to have funds left over for another business idea).
NO Drastic Changes – This may sound weird to some but drastic changes are not the key to entrepreneurial success. In fact, making a drastic change will only increase (often dramatically) the level of risk associated with anything entrepreneurial. One example of making a drastic change that unnecessarily skyrockets risk is when someone quits their job with no planning and starts their business the next day. You may be gung ho at first but unless you already have experience, contacts, resources, and more in the field of your new business then you have likely just heaped yourself a huge serving of unnecessary risk without the accompanying huge potential reward. A better way to do it (note, that I am just speaking in general risk/rewards terms now and of course some people are certainly the exception) is the way that Matt Jabs continues to work his day job as an Information Technology Manager and then in addition works to build Debt Free Adventure into an ever increasing source of income. When I first started my Florida health insurance agency (my first of 5 companies that I started) I made the decision to continue working my day job as a tax preparer studying for the CFP® (which I passed) while working to build my agency on the side. Yes, there were many weeks of working what was in essence two 40 hour a week full time jobs but the risk of having to live out of a cardboard box if I failed was greatly minimized.
Money – Entrepreneurs typically need to risk not just their time and effort but their own money in order to get their business off the ground while employees typically will not need to risk any of their own money as an investment (for the sake of this discussion we will leave stock options, sales commissions, and other performance based employee pay systems out of this comparison because while not an investment of employee money per se it does involve a different level of risk).
Granted we could spend a lot of time delving into the specifics of each of the two areas but I believe that it is fair to say that the two main differences in risk between the “Entrepreneur Profession” and the “Employee Profession” could be characterized nicely as differences in the general categories of control and money.
Managing and Minimizing Entrepreneurial Risk
As any student of Finance 101 knows within the first week of class, “Generally speaking, the greater the risk the greater the potential reward”. So the goal in becoming an entrepreneur is not to eliminate risk which is for the most part impossible but to manage and minimize the risk so that the risk is appropriate to your specific situation and that you have positioned yourself in an entrepreneurial undertaking that has an acceptable risk/reward relationship to you.
Here are some concrete principles that may help you both minimize and manage the risk that is inherent in any entrepreneurial endeavor:
Save Money by Funding Yourself – “Fund Yourself” is a term that is sometimes called “Bootstrapping” and essentially means that rather than betting the farm to invest all of your nest egg into a business idea (or rather than spending a ton of effort trying to raise money from investors) see what you can do to get your idea to the market as cheaply as possible. Sure, you will have to spend some of your money but budget wisely with the goal being to get the idea to market and test out market demand for your product or service. Yes, blowing all of your nest egg into a hare brained business idea can be labeled as bootstrapping but strive to “bootstrap” as wisely and cheaply as possible so that you can gauge market demand and then iteratively make improvements (or if the idea is a dud then you can simply come up with another idea and be thankful that your budgeting allowed you to have funds left over for another business idea).
NO Drastic Changes – This may sound weird to some but drastic changes are not the key to entrepreneurial success. In fact, making a drastic change will only increase (often dramatically) the level of risk associated with anything entrepreneurial. One example of making a drastic change that unnecessarily skyrockets risk is when someone quits their job with no planning and starts their business the next day. You may be gung ho at first but unless you already have experience, contacts, resources, and more in the field of your new business then you have likely just heaped yourself a huge serving of unnecessary risk without the accompanying huge potential reward. A better way to do it (note, that I am just speaking in general risk/rewards terms now and of course some people are certainly the exception) is the way that Matt Jabs continues to work his day job as an Information Technology Manager and then in addition works to build Debt Free Adventure into an ever increasing source of income. When I first started my Florida health insurance agency (my first of 5 companies that I started) I made the decision to continue working my day job as a tax preparer studying for the CFP® (which I passed) while working to build my agency on the side. Yes, there were many weeks of working what was in essence two 40 hour a week full time jobs but the risk of having to live out of a cardboard box if I failed was greatly minimized.
