Starting a Business Isn’t Risky? has had a few good articles lately that have really made me think. Keith McFarland has an piece titled Myth of the Fearless Entrepreneur that goes into the notion of risk and starting a business. McFarland has 22 years of analysis of 7,000 growth companies and he finds that entrepreneurs as risk takers is not completely true. What he finds is that start ups are founded by people who aren’t risking anything because they have nothing on the line. What I mean, well here is an excerpt:

Some might say Scott Cook, co-founder of Intuit, took a huge risk
when he left a successful career at Bain & Co. to help start the
company. But Cook figured otherwise. “The worst thing that could happen
to me is that I would spend a few years paying off credit-card debt. To
me, it looked like a risk-free decision,” he said. Like Cook,
most people who start businesses don’t take big risks because they
don’t have a lot to risk when they’re getting started. Consider the
history of the U.S.’s fastest-growing firms: 73% of them were started
with less than $100,000 in capital. That’s clearly in Cook’s “go back
to work, and pay off the credit card” range.

The article goes on to say that as start ups get beyond a certain level, their appetite for risk becomes smaller. The management now has something to lose so they become less aggressive. It is a similar idea as the Innovators Dilemma. The idea is one where a disruptive force creates advantages for a company based on its new offering. But as the market adjusts, the company becomes less likely to find the next disruptive idea.

What I find interesting is the emphasis on small per centage points. I remember when I was at Kodak interning (late ’90s). The market share for Kodak consumer film sales at the time was something around 70% with Fuji garnering much of the rest. The emphasis was on gaining a few per centage points on Fuji. At the time, it was going down. But while the focus was on Fuji, Kodak lost a major opportunity to take the lead in digital photography. And it wasn’t like Kodak didn’t know about it, they had the technology and even a few products. But taking on a few per centage points in market share on traditional film sales is more sensible than seeking the new market of digital print (an ultimately cannibalize the film offering). But we know how that turned out.

I’m not a big Google guy. I think they do many things well, but I don’t go “ga ga” over them like others do. Anyway, I do need to give them some props on the fact they are just as aggressive now as they were when they first started out. Ideas like getting into the wireless spectrum space or pursuing the green movement show that they are not changing their stance even though they now have more resources.

It comes down to your skills and the confidence you have in yourself to go on even if things don’t work out.


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