Risks and Rewards of Entrepreneurship

First Republic Bank
September 2, 2022

  • Becoming an entrepreneur offers personal and professional freedom, including the chance to manage work-life balance and make decisions about a company’s future. 
  • Running a business does come with risks, including those related to market and economic trends, finances and technology. 
  • Successful entrepreneurs deeply understand these risks and use research to make informed decisions to help the company succeed.

Many people dream of owning their business, as they're drawn to the benefits of becoming their own boss and turning their passions and ideas into a livelihood. But what does it take to become an entrepreneur?

It involves taking risks that can impact the business, as well as the business owner. Before taking the plunge to launch a new venture, aspiring entrepreneurs must understand the risks that come along with business ownership, as well as the rewards. 

The risks of entrepreneurship 

Successful entrepreneurs tend to be willing to take chances, as pursuing a new business venture often involves taking calculated risks based on extensive research. Such research takes a great deal of time and energy but allows potential business owners to better understand several types of entrepreneurial risks. 

Market risk

Factors affecting a market sector or the economy can impact new businesses, and aspiring entrepreneurs need to take these risks into account. Opening a business that serves a shrinking market, for example, may come with additional risks, compared to opening a business in an area of the market that’s on the rise. Business owners will use market analysis to better understand the business landscape and help predict the likelihood of their new venture succeeding. 

Financial risk

Becoming an entrepreneur calls for taking an active role in the business's financial planning. Entrepreneurs may use their own money or external funding to launch their businesses. Doing so means assuming some financial risk, so successful entrepreneurs will assess that risk and create a financial plan accordingly. 

Competitive risk

Often, entrepreneurs aren’t creating a new market — they’re entering an existing market that already has competitors. As a result, entrepreneurs are taking on competitive risk — the chance that their offerings won’t be able to gain market share because of alternatives. 

A competitive risk analysis will help an entrepreneur assess if there’s room in the market for their business. An entrepreneur might decide against opening a business in an oversaturated market, for example. They will look for competitive advantages, like lower prices or more effective marketing, which can help their small business attract customers over its more established competitors.

Technology risk

Innovation and new technologies have the potential to disrupt the marketplace, and entrepreneurs take on technological risks when launching a business. Technological risks can include privacy and security concerns, such as the potential for a data leak or IT breach, as well as technological risks related to money if the company needs to invest heavily in technology to remain competitive in the market. 

The rewards of entrepreneurship

While it’s important to take seriously the potential risks of starting a business, the rewards can be great, as well. Being an entrepreneur often comes with more freedom and control than being an employee, and business owners often enjoy other professional and personal benefits. 

Career fulfillment 

Starting a business means turning a vision into a reality, and that can be intensely fulfilling. Launching a business to solve problems that entrepreneurs are passionate about instills their work with a sense of purpose and allows them to create the positive changes they'd like to see in their communities and industries.

Work-life balance

Entrepreneurs running thoroughly established businesses often have more control over their work-life balance than employees. While a growing business requires a hefty time commitment at first — which means that an entrepreneur’s personal life may temporarily take a back seat to their professional life — the business will eventually stabilize. This allows the business owner to lighten their workload as they wish. 

Leadership experience

Becoming an entrepreneur means taking charge of the future of the business. Entrepreneurs must become a leader for their staff, contractors and other stakeholders. This allows entrepreneurs to develop leadership skills as they delegate tasks, manage talent with different skill sets, and rally the team around the company’s mission. 

Company control

Ultimately, entrepreneurs are in the driver’s seat when it comes to their businesses. They'll have near-complete control over the company. They'll also have the power to make decisions that they feel will best benefit the business, as well as map out long-term goals and strategies for the company.

The bottom line

Enjoying the benefits of entrepreneurship calls for understanding the risks associated with opening a business and taking steps to mitigate them. Understanding the market, and how a business will fit in, can help set an entrepreneur up to succeed.

While the path to entrepreneurship looks different for everyone, learning from other business owners can help you on your journey. Click here for advice from innovative entrepreneurs and investors on the power of persistence, the importance of partnerships and more. 

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