In the last week, I’ve seen mentioned on several sites that people who start businesses come from money or that they are broke.
In other words…
They have nothing to lose.
One article (I skim hundreds a day so I can’t find it to cite) only mentioned that businesses are started by people with money and completely ignored all the stories of people who started with nothing.
I haven’t seen anything with any statistical analysis to know if the two groups that take on entrepreneurship really are dominated by people with nothing to lose or if it is another one of those entrepreneurial myths.
I fall into the category of having nothing when I started. I know a lot of people like me.
I met a few, and read many stories about, people who came from money and wanted to do something to make a name for themselves.
Bill Gates is a famous example. Dropping out of college to start a business wasn’t really risky. He could always go back to college if things didn’t work out and his parents would foot the bill.
I’m unsure whether he was receiving money from his parents in the beginning of his business. I’m assuming he got some money though he quickly started getting consulting income from IBM.
Where’s The Line?
Where is the line between having nothing to lose and having something to lose, or worse, having everything to lose?
Is it true that people with something to lose, plus limited resources don’t start businesses?
For the vast majority of people it seems to be true. I wonder if the ‘exceptions prove the rule’ or if the rule of having something to risk makes you risk averse isn’t really true.
There looks to be a growing trend around the Side Hustle. A good friend and former business partner stayed in his six figure job until his side hustle was making as much as his job.
For the ambitious, yet risk averse, the side hustle seems to be the conduit past the “nothing to lose” mentality.
I’ve seen this with entrepreneurs too.
They achieve some success. Some become risk averse. They become afraid bet on the next idea.
Where other entrepreneurs keep betting. Take Elon Musk as an extreme example. The dude was borrowing money from friends to pay his rent, which I believe was six figures a year, while betting his entire fortune on two moonshot ideas.
What makes the difference?
I think the big difference between the risk taker and the risk avoider is nurturing the skill of risk management.
Upside Vs Downside
When you have nothing to lose, you focus almost exclusively on the upside of the idea. Who cares about downside, when you don’t have anything to lose?
I think many people who don’t really have much to lose, focus only on downside and then don’t take action.
Entrepreneurs with something to lose, but risk anyways, can see the upside, but develop a mental model on mitigating the downside.
They know how much they are willing to lose, determine the odds of loss occurring, and create a plan as to how they’ll handle a downturn so they don’t exceed what they are willing to risk.
Warren Buffett has a catchy quote that embodies this risk mitigation model:
“Rule #1: never lose money. Rule #2: never forget rule #1.”
If you are wanting to start a new venture in your business or outside of it, and you’re not starting, it could be that you are thinking of the upside, but haven’t defined the downside.
Whatever is unknown, scares us.
The upside might get you excited. But the downside could stop you before you start.
Take the time to plan, not only how to win, but how not to lose.