Risk and Entrepreneurship

Feb 8, 2012

Bruce Gibney and Ken Howery asked, “Just how risky is entrepreneurship?”  If their stats on the Harvard Business Review blog are to be believed, not very.

“Of 5,000 businesses started in 2004, almost 56% were still in business in 2010, despite suffering through a brutal economic downturn. Even as venture capitalists predisposed to have faith in new ventures, we were somewhat surprised that entrepreneurship has such favorable odds (the traditional rule of thumb in venture is that 4 out of 5 companies will flounder, although VC-backed tech companies may be somewhat riskier than the entire universe of new companies).”

Gibney and Howery compare this outcome to the odds faced by law school graduates, who number nearly double the anticipated amount of job openings over the next decade.

Rather than perceive entrepreneurship to be some deviation from the norm, the authors argue that we should see starting our own business as the sensible, practical option.  It's not as risky as many assume, while the potential rewards can be quite large.  Plus, entrepreneurs are generally happier than their salaried brethren.

Let's be clear: the American free enterprise system needs businesses both large and small.  But it's undoubtedly true that new firms are the best job creators we have.  What's more, entrepreneurs are just the persons needed to capitalize on innovation.  One could argue, as Gallup's Jim Clifton does, that a good idea or product is effectively meaningless without the entrepreneur there to bring it to market.

For all these reasons and more, perhaps it’s time for us to look at entrepreneurship in a new light.

Cross-posted from the National Chamber Foundation's blog.

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