There are two American dreams which dominate our economic life.  The first is to own a home and the second is to own a business.  Probably not everyone dreams of the second in the way they do of the first but many do.

Among the issues to think very carefully about before launching your own enterprise though is your tolerance for, and capacity for, risk.

Let’s discuss capacity for risk first.  But before that let’s consider the sobering fact that 64% of all service businesses (insurance agencies are in this category) do not survive beyond five years.

Capacity for risk simply means “how much money have you got”.  In other words how much can you afford to lose?  One of the principal reasons businesses fail is that they are undercapitalized.  Under capitalization combined with poor planning capabilities of many new business owners creates a lot of risk.  Back to capacity; if you have not saved up enough money to fund the needs of your business long enough for it to become self-financing AND you haven’t saved up enough money to live on until breakeven or better you have no business starting a business.

Having said that I recognize that many people start successful businesses with far less money in the bank than that!  I, for one, have done it several times!

I have done it, and I have been successful at it, because I have a very high tolerance for risk.  I was willing to lose what I’d accumulated in order to achieve a dream.  And I was willing to do whatever it took (that was legal, ethical and moral of course) to make my dreams a reality.  That included taking on debt, reducing my standard of living, working night and day and investing every nickel I had in the business.  These are serious risks wherever you start from.

I have known many people who wanted to be business owners who could not pass this bar.  In some cases they thought they could but when faced with the reality of loss just couldn’t do it.  These are the people who want to buy a business, or buy into one, who never think the price is fair or reasonable.  These are the people who want to hold something back in case the “investment” doesn’t work out.  These are people who don’t have an adequate risk tolerance to be entrepreneurs.  Unfortunately, many become business owners without understanding this.  Please don’t make this mistake.

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