An outline of the key risks and rewards to entrepreneurship

1. Risks &
Rewards of
Enterprise

2. What is risk?
• The chance of loss or damage
• The probability that something
goes wrong leading to a loss
• When a hoped-for outcome
does not happen

3. What could go wrong for the entrepreneur?
• Business will fail & lose
investment
• Possibly liable for debts
(unlimited liability)
• Harder to find work or
start again
• Stigma of failure

4. Why start-ups are risky
• High rate of business failure
for start-ups
• Difficult to test a new
business idea without trading
• Easy to be over-optimistic in Silverjet Airlines
Founded 25 Jan 2007
the business plan Closed 30 May 2008
• Competitor response is often
aggressive
• Easy to underestimate the
effort and persistence
required to be successful

5. Three main reasons why start-ups
fail
• Insufficient customer demand
– Poor market research & unrealistic plan
– Competitor response – e.g. price –cuts or extra
promotion
• Good idea, but poor execution
– Wrong people; poor management
– Growth is too quick (overtrading) or too slow
– Failure to manage cash flow
• External shocks
– Economic change (e.g. credit crunch, oil prices)
– Legal, social & technological change

6. What is a calculated risk?
A risk that has been given
thoughtful consideration and
for which the potential costs
and potential benefits have
been weighted and considered

7. Calculated risks
• Risk cannot be avoided in business
• Entrepreneur needs to understand
where significant risks arise
• Then assess the probability of the risks
happening (this has to be an estimate)
• What would happen if the risks occur –
cost, cash etc
• Decide whether the potential rewards
make the risk worth taking

8. Rewards of enterprise

9. Financial rewards
• Profits – usually reinvested into the
business in the early years
• Dividends – taking profits and cash
out of the business
• Capital growth – an increase in the
value of the business

10. Examples of non-financial rewards
• A sense of satisfaction
• Building something
• Being in control
• Making that first sale
• Opening a new location
• Employing more people
• Getting an industry award or good
publicity
• Getting great feedback from
customers

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