BECOMING AN ENTREPRENEUR is being touted as an alternate way to earn a living in these days of high unemployment. It represents an investment in yourself and in your knowledge and training. Today, we consider the risks and returns of entrepreneurs.
Typically in the beginning, the entrepreneur is the chief cook and bottle washer in his business. He owns it and dislikes having to depend on anyone else for its success. He has an independent mindset and is motivated by the need to control his circumstances.
Some entrepreneurs spend many years in training, attaining a high level of knowledge or skill. They want to do exceptionally well. Examples of such entrepreneurs are doctors, lawyers, engineers, accountants, real estate agents, small retailers, cleaners, restaurateurs, consultants, other direct commission agents, mechanics, plumbers, carpenters, painters, electricians, hairdressers and artists. They work as entrepreneurs when they are their own bosses.
Becoming an entrepreneur is a commercial undertaking. Entrepreneurs invest their hard work and knowledge with the hope of a favourable return. They normally work long hours dedicating their time and skill to their chosen endeavour. Yet, this application does not guarantee success. The risks are very high and the failure rate of such new businesses in their first three years is estimated at over 70 per cent.
With business failure, the investor often has to find a steady job in order to repay the build-up of significant debt. On the other hand, success of the business could mean exponential returns for the entrepreneur and possible additional employment opportunities for other people. The work of a successful entrepreneur can generate massive returns for him and significant contributions to the national economy. The paradox is that even if the small business is successful, the entrepreneur will usually find himself working even harder and facing new risks.
One of the greatest risks for entrepreneurs is that the return on their investment is often not as important to them as their independence and the need to be respected for good work. When it comes to their work, they are the professionals who do not want or need supervision. Â
When it comes to investing in the business, they do not want to have partners or shareholders sharing the investment risks. A minority shareholder may be tolerated; but not those seeking a controlling interest.
The entrepreneur finds it hard to rely on staff to do a good job. The risk is that the breath of business knowledge, skill and experience that is needed to run a successful business through a growth cycle is typically not found in one person.
Yet, on the other hand, there are also risks when an entrepreneur does find a good staff member. That person may turn out to be much like them. That is, the staff member may end up leaving the business to set up their own business to compete with their former employer. Given that an entrepreneur does not readily involve other persons deeply in the business, there is the risk that the business is more prone to setbacks due to the owner’s ill health, injury or death. Also, burnout is likely.
One way to lessen this risk is for the entrepreneur to consider selling his business when it is at its peak and then starting another business. Yet, this is not the usual disposition of an entrepreneur.
Entrepreneurship fulfills the rule that facing risks successfully can lead to the most satisfying returns, yet failure to handle the range of risks involved can present business and personal financial disaster.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd. Â
