The Entrepreneurial Journey: Risks, Rewards, and Realities

Have you ever dreamed of achieving success and financial independence through owning a business, being your own boss, and reaping the rewards you achieve? Human beings are very often highly ambitious and driven, and if this drive is combined with proper skill and knowledge, as well as a fair share of luck, beautiful outcomes can make this dream a reality. Today, we’ll discuss the entrepreneurial journey so you can assess whether you have what it takes to own a business.

entrepreneurial journey
Image by Gerd Altmann from Pixabay

Specifically, the incredible stories of successful entrepreneurs like Mark Zuckerberg, Elon Musk, and Jeff Bezos inspire millions around the globe to aim high and shoot for the stars. While inherently a risky process, with sufficient planning, it’s possible to see your dreams become a reality. Just how likely is it for an aspiring entrepreneur to reach the promised land? Below, we will answer that question while going over some of the most fascinating pieces of data and information regarding pitfalls along the entrepreneurial journey.

Why do people choose entrepreneurship?

The allure of entrepreneurship is multifaceted. For many, it represents the ultimate form of professional freedom and self-expression. A 2021 survey by Guidant Financial found that the top reasons people start their businesses include:

  1. Ready to be their own boss (55%)
  2. Wanted to pursue their passion (39%)
  3. Opportunity presented itself (33%)
  4. Dissatisfaction with corporate systems (25%)
  5. Laid off or outsourced (10%)

As we can observe, these motivations reflect a desire for autonomy, purpose, and the potential for greater financial rewards. Entrepreneurs are often driven by the vision of creating something meaningful and leaving a lasting impact on their industry or community.

Success rates and viability

While the entrepreneurial dream is compelling, the reality can be pretty sobering, though at the same time, expected. According to data from the U.S. Bureau of Labor Statistics:

  • About 20% of new businesses fail during the first two years of operation
  • About 45% fail during the first five years
  • About 65% fail during the first ten years

Of course, failure here is not strictly defined as only bankruptcy. It can also include things such as low profit, voluntary dissolution, and sometimes even relocation, which can count as the business being moved away from its original state of founding. Even with all that context in mind, these statistics still highlight the challenging nature of entrepreneurship.

However, it is essential to note that failure rates vary significantly across industries. For instance, the healthcare and social assistance sector has a higher survival rate, with about 85% of businesses surviving their first year, compared to just 75%, say, in the construction industry and various others that rank much lower.

Failure rates also depend on the nature of the business venture. Many business startups are termed lifestyle businesses, as their primary goal is to replace the founder’s income. Examples include:

  • professional services like bookkeeping and legal services
  • consultants, such as marketing and management
  • tradespeople such as plumbers, electricians, and carpenters

These lifestyle businesses have a higher success rate as they don’t require a big outlay of money initially, nor do they need a lot of overhead that drains income. For instance, a lifestyle entrepreneur might work out of a home office (even a corner of a bedroom), use their own vehicle, and find they have little distinction between work and home life. Also, since many of these businesses don’t require employees, at least initially, much of the profit flows into the entrepreneur’s pocket. This type of entrepreneurial journey is much less likely to fail but also unlikely to generate massive profits or employ a significant workforce.

The other type of business is called a high-growth business. These ventures require a much more complex entrepreneurial journey as they require significant funding both initially and through the growth phase of the business, involve other people who have a vested interest in the profits of the business, and involve more legal and structural complexity. These businesses involve much more risk but also house the potential for vast profits.

Despite these challenges, entrepreneurship remains a viable career path for those willing to navigate its risks. Those successful in the entrepreneurial journey often view initial failures as learning experiences, refining their approach with each attempt and ideally overcoming their business challenges. Henry Ford bankrupted several businesses before successfully founding Ford Motor Company. This resilience is a key factor in long-term success.

How risk attracts people

Risk is inherently tied to entrepreneurship. It’s both a deterrent for many and a thrilling aspect for others. The types of risks entrepreneurs face include:

improve cash flow
Image courtesy of SCORE
  1. Financial risk: Often involving personal savings or debt
  2. Career risk: Leaving stable employment for an uncertain venture
  3. Market risk: The possibility that the market won’t respond to the product or service
  4. Operational risk: Challenges in executing the business plan effectively

These are pretty obvious, glaring challenges tied to entrepreneurship that every single individual, even thinking about getting a foot in the door, is well aware of. Still, fascinatingly, they do not deter them from the path. There are plenty of parallels one can draw to highlight the psychology behind this aspect of human nature.

If we look at other thriving industries where risk is inherently a factor, casinos immediately come to mind. With a massive player base across establishments around the globe, casinos perhaps serve as the clearest example of how risk can be a positive factor for many. Yet, the entrepreneurial journey of owning a successful casino shows that risk tolerance isn’t sufficient to be successful, as the empty buildings in places like Atlantic City and Las Vegas demonstrate.

The chances of success and the excitement and thrill generated through each fresh, entertaining experience keep the players coming back. Over time, they develop their skillsets, honing them through experience as they continue growing with each poker or blackjack game or maximizing their chances at success and raising the entertainment value gained. Indeed, despite common blackjack mistakes, such as overbetting, misunderstanding ace values, splitting 10s, or insurance bets, players are drawn to the game due to the enjoyment of risk-taking. The potential of winning big can entice players to optimize their betting strategies and master the gameplay so that they can make optimal decisions.

While these parallels can be drawn to highlight some of the psychological aspects behind the thrill of casinos and entrepreneurship, inherently, these two are, of course, significantly different nonetheless.

Demographics of successful entrepreneurs

While entrepreneurial success stories come from all walks of life, specific demographic trends emerge when analyzing successful entrepreneurs:

  • Age: Contrary to the popular image of young tech founders, the average age of successful startup founders is actually 45, according to a study by MIT Sloan School of Management. This suggests that experience and industry knowledge play crucial roles in entrepreneurial success.
  • Education: A study by the Kauffman Foundation found that 95.1% of entrepreneurs in high-growth industries had at least a bachelor’s degree, and 47% had more advanced degrees. This underlines the importance of education in providing the skills and knowledge necessary for business success.
  • Gender: While the entrepreneurial landscape has traditionally been male-dominated, women-owned businesses are on the rise. According to the 2019 State of Women-Owned Businesses Report, the number of women-owned firms increased 21% between 2014 and 2019, compared to a 9% increase among all businesses.
  • Prior experience: A study published in the Journal of Business Venturing found that entrepreneurs with prior industry experience were 125% more likely to succeed in their ventures.

These demographic insights suggest that while entrepreneurship is open to all, certain factors such as education, experience, and industry knowledge can significantly influence success rates.

Optimizing the entrepreneurial journey

Obviously, careful planning is essential. The first step is to build a business plan based on research rather than assumptions. Then, get all your ducks in a row by acquiring the right skills to operate successfully. You can either take classes to develop the skills and expertise you need or hire folks with those skills. Initially, you may find skilled workers willing to help build your business without taking a salary in exchange for a piece of the company. But only take on those who have the skills and experience.

You’ll also need to gain some financing for everything except the smallest of lifestyle businesses. Bank loans are extremely hard to come by unless you have a track record. Venture capital is a viable option, although investors only invest in specific industries and among founders with the potential for high growth in the near term. They want to take out their investment within five years so they can reinvest in another startup. A good business plan is essential at this point.

Another financing option is friends and family or using the equity in your home, credit cards, or other assets. Recent changes in federal law make it easier for founders to raise money from individuals who weren’t considered qualified investors. There are always crowdfunding options if you have something that might tickle the imagination of small investors. Finally, you might start your business on the side while keeping your full-time job until it grows sufficiently to warrant quitting your job.

Conclusion

The entrepreneurial journey isn’t easy and it’s full of risk. However, if you take this advice, you have a good shot at realizing your dream of business ownership.

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