Risk-taking is almost synonymous with entrepreneurship. In order to start and support your own business, you’ll have to put your career, personal finances, and even your mental health at stake. For most, the prospect of making your own decisions and being in charge of your own destiny is worth it. But if you’re going to be successful as an entrepreneur, you have to be prepared for the risks and challenges that come with it.
Following are seven risks that every entrepreneur must take, from ideation to ongoing development:
1. Abandoning the Steady Paycheck. Before you venture into the world of business ownership, you’ll first have to say goodbye to your current job, and in some cases, your career. Some people have the luxury of a backup plan — an option to resume your career in case things don’t go well in your independent business. But for most starting entrepreneurs, the choice is a risky plunge. There’s no guarantee of your personal income, especially in the first few months and years of your company’s existence, and you’ll probably be too busy to secure or sustain an alternative line of income.
2. Sacrificing Personal Capital. Some entrepreneurs are able to start their ventures relying solely on external funding. That usually means a collection of angel investor contributions, government grants and loans, and results from crowdfunding campaigns. But most entrepreneurs also have to dive into their own bank accounts and personal savings in order to get things started. You may not need to completely liquidate your nest egg, but you will have to front at least some personal money — and that means abandoning, or at least diminishing, your safety net.
3. Relying on Cash Flow. Even if you have a line of credit, securing a regular cash flow is difficult and stressful. You can position yourself for a profitable year, but still struggle with the day-to-day necessities if your revenue doesn’t match or exceed your costs in a timely manner. Bills can add up quickly, and if you don’t have enough revenue to support your outgoing cash flow, you could run short of money for paychecks or be forced to dip into emergency funds. Be prepared to address it daily, or at least weekly.
4. Estimating Popular Interest. No matter how much research you do or how many tests you complete, you’ll never be able to estimate popular interest in your business with perfect accuracy. People are somewhat unpredictable, which could put a giant hole in your otherwise sound plans. Even when all the data appears to be in your favor, there’s a chance you’re overestimating the interest in your company, and if your projections are off, your entire financial model could implode.
5. Trusting a Key Employee. When you first start a business, you won’t have a full team of employees working for you. Instead, you’ll probably have a small, tight-knit group of people working tirelessly together in an effort to get things up and running. You’ll have to put an overwhelming amount of trust in them, especially if they have special skills that are hard to find and are willing to start work at a lower salary than the industry standard. For example, if you hire a single, experienced lead developer to work on your product over the course of a few months, you’ll need to have absolute trust in their ability to get the job done on time. Otherwise, your timeline (and your product) could be fatally compromised.
6. Betting on a Crucial Deadline. Startups are, by nature, forced into strict timelines for their product launches and milestone goals. Their finances are fragile, and their investors are eager to start seeing the wheels turning. As a result, most entrepreneurs are forced to make multiple goals contingent on a handful of deadlines, and those deadlines become absolutely critical. Be prepared to stay up at night worried about your ability to hit those deadlines, and coming up with contingencies if you cannot.
7. Donating Personal Time (and Health). Entrepreneurship takes a toll on the average person. You’ll spend countless hours doing work to make your company successful, and your remaining hours worrying about what you have or have not done thus far. You will lose sleep, you will miss out on personal time, and you will experience much more stress than usual. The rewards of entrepreneurship often outweigh these personal risks, but you have to be prepared to live this type of lifestyle.
Risks shouldn’t steer you away from pursuing entrepreneurship. Instead, see them for what they are: necessary obstacles on a greater path. There’s no way to avoid the risks you’ll face as an entrepreneur, but by recognizing them, you can prepare for them and mitigate them.