Risk & Reward in Business

It is a well-worn cliche that entrepreneurs are risk takers, and there's certainly some truth to this insight because the very act of founding a business requires you to strike out on your own and put your personal assets on the line. The rewards of entrepreneurship can justify these risks, though, and they include both the potential tangible benefits of earning a good living and the intangible perks of being your own boss.

TL;DR (Too Long; Didn't Read)

The risks of running a business include losing money and working a grueling schedule. The rewards of running a business include satisfying work, happy customers and, of course, profit.

Risks of Entrepreneurship

  • Personal investment. It takes money to start and run a business, and most likely, at least part of these funds will come from your personal savings. Even if you don't directly spend your own money, you'll no doubt have to put your own assets on the line as collateral for business loans.

  • Uncertain return. No matter how good your business idea, there is no guarantee it will succeed. Market conditions change, and you may encounter unforeseen expenses that deplete your bottom line even if your sales are strong. If you need a steady weekly income, then the risks of entrepreneurship may not be for you.

  • Ultimate responsibility. When you run your own business, you are personally responsible for everything from making sure the bills get paid to seeing that the dishes are done. This can result in long hours and ongoing stress.

Rewards of Entrepreneurship

  • Autonomy. As your own boss, you get to make your own decisions. If a customer is difficult to deal with, you have the option of cutting off service and then finding your own solution to make up for the lost sales. You can steer your ship any way that makes sense for you as long as it's legal, and you can develop a business model that's reasonably profitable.

  • Creativity. Although on the surface business seems to be a dry pursuit geared primarily toward making money, it can actually be a profoundly creative endeavor that gives you space to express your individuality and pursue activities related to your personal values. Because you are the leader and the prime decision maker, you can innovate to your heart's content as long as you can make things work financially.

  • Financial rewards. When you work for someone else, your potential for compensation is limited even if you are paid well. You get paid a designated salary and, if you're lucky, added benefits and bonuses. When you work for yourself, the profits you earn are entirely your own after you pay your taxes, of course. Most small business owners don't make it big, but the potential for doing so is a powerful motivator.

Risk Aversion and Financial Need

Although many people would love to make their own decisions about their work lives and have the potential for unlimited compensation, it may not make sense for them to give up the consistency and predictability of a regular paycheck.

Your reward definition for business will naturally depend on your personal values and individual circumstances. Even if you have the personality and willingness to be a business owner, if you are the sole financial provider for a large family, you may not be able to make the investment of money and time.

Business savvy also plays a role as well in the risks and rewards of business and the viability of any individual's foray into the world of entrepreneurship. You may have the necessary financial resources and tolerance for risk, but if you can't read financial statements or manage your money effectively, the risks will be greater and the rewards will be fewer.

References

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.