Risk/Reward - Armageddon or No Contest?

Risk/Reward – Armageddon or No Contest?

Armageddon. The final battle between good and evil. An apocalyptic scenario. Literally. For many entrepreneurs the risk/reward relationship is seen in these terms. Kill or be killed…

Entrepreneurs are people who inhabit the risk/reward battleground permanently. The Oxford English Dictionary defines an entrepreneur as:

“a person who sets up a business, taking on financial risks in the hope of profit”

That’s a bit uncomfortable, when you look at it closely. It suggests an equation which has on one side the certainty of risk against, on the other, only the hope of profit. And while the truth of that relationship can’t be denied it is this very perception, this negative interpretation of the relationship, that accounts for the failure of most would-be entrepreneurs to follow their dreams. This isn’t fear of failure, it’s fear of loss.

That’s a perfectly rational fear. Indeed, not to fear loss would be irrational and a recipe for, well, quite a lot of loss. Which isn’t the point of entrepreneurship.

In the pre-digital economy risk and reward were so fundamentally intertwined as to be seen as the two sides of the same coin. The essence of the problem has always been that if you can win, you can also lose. Lose everything you’ve built, everything you’ve invested and, at the extreme, everything you own. I understand that better than most. When I lost in a previous life I, true to form, went the whole hog. It sucks…

But what If we could remove that fear – that entirely rational fear – by resetting the relationship? Reducing the risk so that the options were simply win or… don’t win? The life of the entrepreneur would be much easier because the real obstacle to success – the fear of loss – would have been removed. Think how much more creative, imaginative and effective we could be.

Well, it’s happening now. The digital revolution is sweeping all before it and it’s changing the rules. The immutable truths of the bygone age are crumbling all around us, and the unbreakable link between reward and risk has been broken at last. At least for the self-sufficient stand-alone entrepreneur. How so? In the digital economy it’s possible to create a successful, productive business with no capital. No stock, no premises, no staff. You can sell goods or services supplied by others, or a service of your own, earn a margin or a commission and incur virtually no costs in the process. This is because the digital economy is an economy of information and the whole world is online and listening. Consider this: Twenty years ago the biggest cost on my profit & loss account was my telephone bill. Just to communicate with my market was costing me tens of thousands. Behind that lay additional costs for the equipment (phones, faxes, even telex) and staff to make it all happen. In those days it was simply unthinkable that it would one day be possible to service a market, and customers, without any of these things. And yet, here we are.

Nowadays the loss you have to fear is the loss of opportunity and reward. Not the loss of what you have, but the loss of what you could have. For me (and remember, I’m speaking with the benefit of personal experience here) that’s an altogether scarier prospect. That definition of “entrepreneur”, when you take away the words “taking on financial risks”, looks a much more attractive thing to be. In fact, it looks like a very attractive thing to be. Starting from scratch it is now possible to build not just a business but a lifestyle. A lifestyle of personal freedom, financial security and emotional wellbeing – all the rewards of the old-world entrepreneur – without the old-world risk, and fear, of losing your shirt. What you do, how you do it and what scale you achieve are matters of choice. Your choice.

Could that be you? If you understand that we now have choices, that the new economy is a place of vast opportunity and that there are no bars to entry – whether education, experience or capital - then you’re already half way home. If you get the “why” then the “how” isn’t complicated, it’s just a matter of learning.

My phone bill last month? I use VOIP and Skype. All in, £20.