Entrepreneurial Timber ◾ 11
1.7 Risk Is a Four-Letter Word
In general, risk is the probability of loss or damage. In an entrepreneurial
sense, risk is the chance of losing invested capital. Thus, in a new venture,
risk is the very real possibility that the business will fail or be less successful
than projected.
Peter Drucker, the management guru, identied four types of business
risks:
3, 4
1. Risk that is built into the very nature of the business and cannot be avoided
2. Risk one can afford to take
3. Risk one cannot afford to take
4. Risk one cannot afford not to take
Generally, there are six major sources of risk in an entrepreneurial ven-
ture as summarized in Table1.5.
The aspiring entrepreneur must be willing to live (and thrive) in an atmo-
sphere replete with risk, which is one of the distinguishing characteristics
of entrepreneurs, however, not with exaggerated uncontrollable, undened
risks. The founder must be a risk manager, not a gambler (where the odds
are against the player).
1.8 Challenges of Entrepreneurship
Before you lose your money, time, energy, family, and possibly your health
in a new business venture, carefully consider the crucial question shown in
Figure1.6.
Table1.5 Major Sources of Risk
Technological Does the new technology work?
Financial Can you raise enough capital?
Market Is the market large enough?
Regulatory Can you meet FDA, EPA, OSHA, ISO, SEC, IRS etc. regulations?
Operational Is adequate management in place?
Force Majeure Are you prepared for natural disasters, re, oods, hurricanes,
etc.? Can you afford adequate business insurance?
12 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
This Guide will help you assess your chances of success by maximizing
your efforts, gaining condence in your own abilities, and evaluating the
rewards of being your own boss. Ask yourself the following questions as
shown in Table 1.6:
5
◾ Are you considering starting your own venture?
◾ Are you a corporate executive ready to quit your job and strike out on
your own?
◾ Are you a corporate executive willing to start a corporate-backed ven-
ture (intrapreneur)?
◾ Are you a highly skilled person in a fast-growing technical eld?
◾ Have you been downsized, laid-off, or re-engineered out of your job?
◾ Are you driven to create maximum value?
◾ Are you pursuing a fast-track entry into entrepreneurship (acquisition)?
Ironically, if you decide to start your new venture, your next important
task is to decide how you will exit once the venture has succeeded. Exit is
the means by which investors (and founders) dispose of their investments.
Your exit strategy will determine whether capitalists will invest in your com-
pany, or by-pass it altogether (Table1.6).
1.9 The Ten Commandments of Entrepreneurship
We have now reached the point where you have at least supercially com-
pleted the process of objectively considering the commitment of conceptual-
izing, implementing, nancing, and operating your new business. Figres 1.8
Are you right
for entrepreneurship?
e Crucial Question
Is entrepreneurship
right for you?
Figure 1.6 The crucial question—Are you entrepreneurial timber?
Entrepreneurial Timber ◾ 13
and 1.9 are “Rules for entrepreneur, I and II.” Subsequent chapters will help
you to more rigorously explore all the facets involved in your new venture.
Good decision-making on your part will require a focused approach to
both technology and business. Moreover, as Winston Churchill famously
said, it will require “a lot of blood, sweat and tears.” However, the rewards
can be astronomical.
Figure 1.11 are the Ten Commandments of Entrepreneurship. You have
started a great adventure with a one-way ticket. Bon voyage!
e Great Irony
Before you
start
Decide on your exit
strategy
Figure 1.7 The great irony—Start at the end (decide your exit strategy).
Table1.6 Exit Strategies
Exit Strategies New Owners
Initial public offering Public shareholders
Acquisition Third-party (a strategic or
nancial buyer)
Secondary sale out-licensing Third-party and entrepreneur
Buyback Entrepreneur and management
Liquidation Bankruptcy
Putting the company to sleep
14 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
Rules for Entrepreneurs I
Great Executioners
Figure 1.8 Rules for entrepreneurs I—Be a great executioner.
Rules for Entrepreneurs II
Great Communicators
Team
Customers/investor
s
Figure 1.9 Rules for entrepreneurs II—Be a great communicator.
Entrepreneurial Timber ◾ 15
References
1. Modied after Timmons, J.A. and Spinellis, S., New Venture Creation, 8th ed.,
New York: McGraw Hill Companies, 2009, Ch. 2.
2. Dun & Bradstreet, Business Failure Record, New York: Dun & Bradstreet, Short
Hills, NJ, 1995.
3. Drucker, P.F., Innovations and Entrepreneurship, HarperBusiness, New York,
reissue edition, 2006.
4. Drucker, P.F., Managing for Results, HarperBusiness, New York, reissue edi-
tion, 2006.
5. Adapted from Roth, C., The Entrepreneur Equation, Dallas, TX: BenBella
Books, Inc., 2001.
Ten Commandments of Entrepreneurship
ou shall be a leader
rst, then a manager
ou shall take risks, not
gambles
ou shall nd a
screaming problem then
solve it
Remember that time is
your worst enemy
Honor your best achievers
ou shall focus on
creating value
ou shall think big, then
execute
ou shall under-promise
and over-deliver
ou shall be your
venture’s best salesperson
ou shall not develop
solutions looking for a
problem
Figure 1.10 Ten commandments of entrepreneurship—Memorize and accomplish to
succeed.
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