Risk and Reward

The greater your risk, the greater your reward. If you ever find yourself assuming greater risk without a corresponding increase in potential reward, then it’s time to re-evaluate what you’re doing.

It is never easy to start a new business. But there is a significant difference between trying to replicate an existing business and trying to create a new market.

Suppose you want to start a new restaurant. You could open a new McDonald’s franchise. You could open a diner serving standard food. Or you could open a new place serving cuisine unfamiliar to the local population.

The McDonald’s is the lowest risk option. In addition, it will likely take the greatest up-front investment. Starting a new diner will be a higher risk, but it will take a much smaller up-front investment. And being the first restaurant with a new cuisine is the highest risk.

Erik Sink advises that you pick your business so that you can compete against the big and dumb. And that is great advice to optimize your chance for success. But because it is an established market, it has the side effect of limiting your upside as well. You can still become comfortable and successful. But you’re not going to be sinfully rich and famous.

If you want a chance to be seriously rich, then you don’t have the luxury of mitigating your risk. You need to go for broke and attempt to build a new market. You don’t get on the cover of Time for competing with the big and dumb.

Personally, I’d be happy with comfortable and successful. But a VC won’t even listen to a business case that makes the founders comfortable and successful.