3B

Assessing the Risks, Issues, and Rewards of Entrepreneurship

Assessing the trade-off between the risks and issues of starting a particular business, and the potential rewards, is arguably the most critical part of the Entrepreneur Equation. Entrepreneurship’s risks and rewards can be both quantitative (savings account stuff) and qualitative (quality-of-life stuff).

Quantitative risks and rewards are financial or numbers-oriented, including risks, such as how much money you are putting into the business, and rewards, such as how much money you can make from the business.

Qualtitative risks and rewards, on the other hand, involve intangible issues and risks as well as rewards or benefits. Qualitative risks would include having less time to spend with your family; issues here might be having to spend time doing work you don’t like; and rewards could include a shorter daily commute. The qualitative risks, issues, and benefits are obviously more difficult to evaluate as there isn’t always an apples to apples comparison.

The most important thing is to find the right balance of risks plus issues versus potential rewards. It is your job to take all of the risks and issues inherent in business ownership and in a particular opportunity, along with your current circumstances, and evaluate if there is enough of a reward. This assessment will help you decide if a given opportunity (or business ownership in general) is worth pursuing.

The key thing to remember is that while the risks and issues are typically required by the business, the rewards are just a possibility, so that possibility has to be big enough and important enough to you to make sense for you to take on all of the risks and endure all of the issues. This is an assessment that most entrepreneurs historically have not performed up front (particularly since many of them didn’t have the tools to identify all of the risks and rewards) and is the most important step you can take in your overall evaluation of entrepreneurship.