Risk vs Reward

I think my interest in entrepreneurship is firstly that it’s a nicely contrarian view to the “Go to school, go to college, get a job, retire in 45 years” type of life planning, and secondly that I find different people’s attitude to risk fascinating.

Reward Focused

My reasoning is that you should take every opportunity that you have to do something you’re wildly passionate about. It might not be practical to just jump into this passion straight away, and if so your plans and goals should somehow put you closer to getting there via either an amazing learning experience or some really good reward in exchange for your time. This view is a sort of backwards-reasoning – less focus on the risk, more on how to get to the desired result from where you are. Some people take it to extremes – One Mixergy interviewee quit a job in a very promising startup, figuring that the fractional percentage equity stake he had been given was never going to change his life as much as holding the reigns to a business himself.

My ideal long-term dream situation isn’t overly materialistic – No mortgage, and never look at the right-hand side of a menu again. I’m not even talking about Roman Abramovich-level gastronomic excess, just somewhere straight across the middle of Jason Cohen’s ‘Rich vs King’ matrix. I see myself still working away at something I’m really interested in long after my gray hair has turned white, but I’m happy to take a little risk to get there.

Risk Focused

The opposite view people tend to take is in weighing everything in terms of risk and loss.  What happens if you try to reach for the goal and fail: Will you lose a secure job? Will you have to dip into savings? If you’re a guest in an awesome country, would you be deported or have to frantically find another job? They only press forward when they’re absolutely certain that the opportunity is safe.

Here’s a completely unscientific chart:

For most people the sane strategy is to do anything possible to move towards the “Low risk, high reward” section and do anything to avoid the “High risk, low reward” quadrant.  Things that will help move you towards this “golden quadrant”:

  • Learn. Eric Sink’s Career Calculus says it far better than I can. Mark Suster’s “Earn or Learn” lends a fantastic perspective directly related to startups. Learning more reduces the risk in decision making.
  • Networking and Mentors – Get to know people who’ve been there and get advice, and people who are trying to get there for support. I’d recommend Keith Ferrazzi’s “Never Eat Alone” as a great primer on effective and authentic networking.
  • Goal Setting. Some people have a plan hard-wired into them, and some people need to create one. Either way, setting SMART goals is a great way to make sure you’re heading in the right direction.

The ‘Crazy’ Zone

The top left quadrant (Low reward, High risk) is an interesting place. On one hand you have The Saints – e.g. Aid workers and volunteers in dangerous locations. Next to them, you have desperate people with no other choice – e.g. a Drug Mule,  Then you have the insane or unaware – People who are either deliberately making life hard for themselves, or who don’t even know they’re in a bad place. If you wake up one day suddenly realizing that you fit into that last group, it’s time to bail ASAP.

The ‘Crazy’ Zone and Startups

If you’re running an early-stage startup you might be in the top right quadrant, rightfully hoping for a high reward for putting your money and long hours on the line. While this is true, entrepreneurs should bear in mind that some of your employees may actually be closer to the upper left quadrant (bootstrapped wages, job insecurity) unless they have a meaningful stake in the company or a fantastic opportunity to learn.

According to Seth Godin, the bottom left ‘Low Risk, Low Return’ quadrant may not even exist any more in terms of ‘safe’ jobs. This puts what would have formerly been a safe ‘job for life’ closer to the Crazy zone. In my mind, this is clear motivation to start a business.

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