Now at the latest, you may ask yourself: “What am I willing to lose?”. The possible answers to the “upside” question – “How can I profit?” – are too uncertain. We know neither the characteristics nor the probabilities of achieving the “best-case” scenario. We deceive ourselves by telling us that we know these parameters. It lets us quickly ignore the “downside” risk. In other words, you should start your entrepreneurial journey with using those resources you can afford to lose. Take it stepwise to afford possible missteps in either monetary (money), economic (time), psychologic (your self-confidence) or social (your reputation) terms.
How much risk can you afford?
To answer that question, you have to determine your affordable loss. You may derive that by considering alternative activities you are forgoing. For example, you could renounce on a planned trip to bring in the “saved money” as seed capital to your venture. Four categories define your affordable loss and thus your budget for your entrepreneurial journey.
- Monetary risk: How much money are you willing to invest into your entrepreneurial path?
- Economic risk: How much time do you want to devote to your startup project?
- Psychologic risk: After which time loss and money spent, can you still look confidently at your own image in the mirror?
- Social risk: When will it be difficult for you to justify your entrepreneurial adventure without any loss of reputation?
The risk compass
How much risk is too much?
The founders of eatVERTS, a food startup that is now operating successfully in the USA with 30 restaurants, used the risk compass above. The founders funded the entire corporate build-up with a privately-held loan: Ahoy, full monetary, psychological and social risk ahead in their startup navigation!
Learn more about the sixteenth module “Risk Compass” of the Startup Navigator in the handbook.