The Real Risk: Being Hooked

Many students who come into our courses at Stanford Business School have shied away from even considering entrepreneurial careers because of the perceived risks.

Many of them owe a lot of money when they leave school; they don't have operating experience; and they believe becoming an entrepreneur is unlikely to begin with, and also very very risky.

But we ask them, "What's the worst thing that could happen if you were to become an entrepreneur?" Not by way of proselytizing them, but just to teach them to be better risk analysts.

Is one of those risks that you won't eat? No, that's not a risk, not if you've provided properly for the bridge period when you're contemplating how you're going to get going. Even after the venture is up and running, there's going to be a salary there for you; it may not be a market salary but it will be a salary that allows you and your family to exist.

Is one of the risks that you will forever be paying off debt if you fail because you've incurred a lot of personal obligations? No, that shouldn't happen, because the entrepreneur should not be the capital supplier in most cases.

Do we think that the entrepreneur who is unsuccessful will forever be branded a failure and unemployable? Absolutely not. The record is replete with failed entrepreneurs who find numerous job offers available to them. Certainly there is risk and some opportunity loss, because if they hadn't been in their failed venture, they could have been working for General Gigantic and making two years' worth of progress in that company.

We think that the main risk resulting from an entrepreneurial failure is that the would-be entrepreneur may become constitutionally unemployable. He or she has almost surmounted the bar by getting into business for him or herself and seen what it would be like to be self-employed.

It becomes emotionally difficult to go back to work for another company. The risk is significant and should be contemplated very, very carefully.