Have plans to start a business? Want to know how to start a business? Before starting a business, you will need to explore your risk tolerance. Everyone is wired pretty differently. We all have different life experiences and vastly different perspectives on failure, growth, and beliefs surrounding what we are capable of. There is no one perspective better than another; we are all just different. However, there is one thing that most of us can agree on; quality of life is essential. For this reason, comfort is the name of the game for most people. In fact, most of us are motivated mainly by this pursuit, so we pursue jobs or create businesses that put us into financial positions that make us the most comfortable. Let’s ask ourselves some questions about our risk tolerance.
When comfort is interrupted by anxiety, the mind can lose clarity when our body diverts into the sympathetic nervous system stress response, commonly known as “fight or flight.” When the going gets tough, the differences in individual risk tolerance appear; risk-averse people will seek flight, while risk-friendly personalities will fight. It is helpful to identify which one you are so you can manage your stress levels and related behavioral responses.
For instance, If I know I’m risk-friendly, I will be careful not to gamble or be too careless with my resources, as I might not be aware I’ve taken too much risk. I believe that people who are sensitive to gambling should have some extra support and accountability from a trusted friend or family member who knows them well and invests responsibly or even conservatively. I might also not know when to call it quits on something that isn’t working.
If I’m risk-averse, I might have debilitating anxiety if I don’t have a backup plan and enough money in the bank to support myself and my family through a startup. Saving up three to four months’ expenses before starting a business could put my plans on the back burner at first and make the starting line seem a long way off, but having that nest egg for the first few scary months will make the difference between giving up and losing my hard work and investment when the challenges arise, verses pushing forward to create a breakthrough to success.
Consider how being risk-averse or risk-friendly has affected your life up until this point. After considering your tolerance level, consider how much more you can handle when you’re still standing on solid ground and moving toward your next steps. For example, if you have started investing in real estate and it’s going very well, how will you know when it’s time to acquire your next property? Is everything going smoothly with the first property? Rentals are working out well, repairs are done, and maybe it’s now self-sufficient and doesn’t take much time or resources to manage at this stage. If this is your situation, maybe when the right deal comes along, it will be time to take on a second property, but make sure to consider the following questions:
- How much time do you need to invest in getting it to self-sufficient status?
- How soon can it be rented?
- How much money will need to be allocated to get it into working order?
- Where will that money come from?
Risk is associated with anxiety, and anxiety is associated with energy. The energy lost due to anxiety will reduce your energy necessary for other areas of your life. If you are anxious, your energy is in essence, leaking out through stress, which can cause immunity problems and sickness. To mitigate anxiety (and there will always be some nervousness associated with new risks), you will need to plan ahead and know what you can expect before getting into any investment. And absolutely consider some curveballs you don’t expect, which are bound to come at some point. This goes for starting a business, too, as it’s also an investment with at least some level of risk associated. What can you handle? What will you do if things take a left-hand turn? How will you navigate that?
If you’ve created a product, I’m sure you’re excited to get that product to market quickly before anyone else does, or maybe you have a me-too product that’s riding the coattails of a fresh product already trending on the market. It’s fantastic to get something selling quickly and build a name for yourself, but it’s rarely simple to launch, and the fickleness of the market can create a doom spiral for a young business that isn’t ready and hasn’t thought ahead regarding varying outcomes.
The name of the game in business is longevity. It’s wonderful to hit a trend at the right time and ride waves of massive profits, but how long will that last? If it all falls apart three years from now, will you be able to get back on the horse and get another product to market? Asking yourself these questions now will significantly reduce anxiety and frustration later. Make a plan that makes sense to you and the stakeholders in your life.
I’ve seen a lot of different business methods over the years. My father was super risk-friendly. He had an organic fertilizer business long before it was cool. Operating in Belize, where the big chemical fertilizer companies had a stronghold, was a challenge for his business. He would continue to push through the challenges with an iron fist, but experienced failure over and over again. He would always figure out how to keep the business going, but with very little profit.
On the other hand, his siblings who stayed in the United States, were very successful in their business endeavors. Some of his siblings have more risk-averse tendencies, and others are more risk-friendly. I haven’t seen one or the other being more successful in the long term. The main differentiator is knowing when to pivot, when to call it quits, and when to push forward. My father should have called it quits long before his passing in 2019. His tough, “stick-with-it-til-the-end” mentality was a perfect example of someone who didn’t consider his risk tolerance and his tendency towards being susceptible to the rush of the risk, to his disadvantage in the long run.
Warren Buffet claims to be relatively risk-averse; he likes his investments to be a sure thing and has kept most of his profits over the years. Other investors have openly been riskier; for instance Elon Musk or Mark Cuban. You can do very well or very poorly in either mindset.
The point of this post isn’t to repeat that you ought to be completely planned out or super organized before starting a business. It’s more to point out that it’s important to “know thyself,” for if you don’t know your personality traits and characteristics and how they impact business decisions (and also relationships), life can be pretty challenging. It’s so much easier to understand what direction to take or how to handle a curveball when we see what we can tolerate and how much we are willing to sacrifice. For more, visit the investing version of this post.
The book Ready, Fire, Aim: Zero to 100 Million in No Time Flat by Michael Masterson has some excellent advice for business owners. I’m also a big fan of the book The Road Less Stupid by Keith J. Cunningham. What to do and what to avoid are the best business tips we can get in all stages of our business. Staying on top of the day-to-day, being self-aware, and treating your team and associates well will help it all work out. Keep your head on straight and enjoy the ride of getting to know you while growing your next big thing. And don’t forget to have fun!
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