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Finalizing and Evaluating Your Entrepreneur Equation

IF YOU HAVE GOTTEN this far and are still considering whether to pursue a new business opportunity today, you should do a final evaluation of your situation, the opportunity, and the overall risks and rewards as the final step in your screening process. You will look at (1) your motivation, to see if the realities of entrepreneurship will likely bring you the rewards you are seeking; (2) your timing, to see if you are best positioned to take on entrepreneurship today or if it would lessen the risks and/or increase the rewards by waiting; (3) your personality, to see if the path of entrepreneurship plays to your particular strengths, and; (4) your opportunity, to see if there are enough rewards in the business model. Then you will evaluate all of these qualitative and quantitative risks and rewards in your personal Entrepreneur Equation to make your ultimate entrepreneurship decision.

EXERCISE 20

TARGET FOCUS—THE OVERALL ASSESSMENT:

Putting Your Entrepreneur Equation Together

Now it is time to assemble all of the exercises you have completed to create your personal Entrepreneur Equation. So, what is your Entrepreneur Equation? It is simply the trade-off between the risks and rewards of a particular business opportunity for you, based on your personal current goals, opportunities, and circumstances. For the equation to make sense for you, your potential rewards need to greatly outweigh the potential risks in total.

Now that you have a clearer understanding of entrepreneurship, the current competitive environment, and what is required to start and run a business, you can compile and evaluate your risks and your rewards. These risks and rewards should reflect your personal situation and objectives today, as well as the specific business opportunity you are evaluating.

Divide a piece of paper into two columns, one labeled “My Risks Today” and the other “The Rewards of the Opportunity.” Below are the areas you will be evaluating on each side of your equation:
 

My Risks Today:

• Timing risks (current finances, experience, responsibilities)
• Personality risks
• Risks related to the particular opportunity I am evaluating
• Capital risks (the amount you are investing, loans you are taking out, any lost salary)
• Risks of the opportunity cost of any investment
• Other financial and qualitative risks

The Rewards of the Opportunity:

• Qualitative and quantitative rewards from my motivation
• Qualitative and quantitative rewards of the particular opportunity I am evaluating
• Other qualitative and quantitative rewards of business ownership

Go back to the various exercises and brainstorms you have completed, using the questions below to help you revisit the exercises. Use the answers to help you fill out and then review the risks and rewards of your equation on your piece of paper.

1. Your motivation
   • Are you being motivated by the type of factors that will create success?
2. Your timing
   • Is it the right time for you to fully engage in a new business opportunity, given:
     • Your personal financial situation,
     • Your current experience,
     • Your current responsibilities, and
     • Your network?
   • Is there anything you can do over the next several months or years to give yourself a better chance of succeeding, such as prototyping or testing the business on a small scale or supplementing holes in your industry and business knowledge, skills, and experience?
3. Your personality
   • Do you have a personality whose character traits are consistent with business ownership?
   • Will you be happier being creative and entrepreneurial while working in another person’s business where they are taking the risk or filling the “Santa” role?
4. Your particular opportunity
   • Is the opportunity you are evaluating a jobbie, job-business, or business?
   • How does that create new risks or limit rewards for you?
   • Does your opportunity have enough competitive advantages to compete effectively in the current über-competitive business environment?
   • Does the opportunity you are evaluating create enough of a financial return to be an attractive business?
   • Will you find more enjoyment in your passion if you are not dependent upon it for a paycheck?
5. The risks and rewards for you
   • What risks and rewards will be created by your new business?
6. Other issues
   • What other issues will your businesses create that you need to factor into your risk and reward equation?

What you have now is your Entrepreneur Equation, with all of your specific risks and all of the opportunities’ potential rewards. Now, for the million-dollar question: looking at your Entrepreneur Equation, does the business opportunity have enough rewards to justify the personal, financial, and qualitative risks you will be taking on? Do the potential rewards significantly outweigh the risks you will be taking and issues you will be enduring? Regardless of your answers to any specific exercise, if this trade-off equation is out of balance, you should not pursue the new business.

Go back to further evaluate your Entrepreneur Equation. As you look at the risks in your equation, is there anything you can do to minimize them and stack the odds more heavily in your favor? How about enhancing the rewards to make the trade-off more enticing? Reducing risks and increasing rewards can rebalance your Entrepreneur Equation to make a given business opportunity more worthwhile for you to pursue.

Remember, the components of your Entrepreneur Equation uniquely apply to you and your circumstances, and may shift over time. Evaluating your Entrepreneur Equation will be an ongoing process and your equation will change any time your objectives, opportunities, or personal situation changes. My goal has been to help you ask the right questions and provide some reality about what you are in for so that you can make an informed decision regarding pursuing a new business and properly assess the risks and rewards at any given point in time. Your circumstances in terms of your personal makeup, your experience, your finances, your responsibilities, and the particular opportunity you are evaluating will impact how much risk is appropriate given the potential rewards of business ownership.