Is Starting a Micro-Business REALLY as Risky As All That?

I mentioned the other day on reddit that I didn’t understand why so many people felt that starting a small business was an inherently risky endeavor. There are, I said, millions of underexploited niches that are too small for a larger business to leverage but perfectly sized for a small or micro-business to thrive in.

Which is not to say that some individual businesses are not risky.

I recently spoke to a guy who is courting angel investors for his technology startup. He can’t get any bigger without capital, but all the angel investors are only offering deals that would cede control of the company since he is a first-time entrepreneur. Risky.

A client of mine is starting a wholesale grocery business that revolves around several new-to-the-market products. Risky. (Also, not a micro-business. Simply a good example.)

I don’t know anyone who’s seriously considering starting a cafe, restaurant or used bookstore, but if they were I would strenuously argue against it. VERY risky.

These are all huge opportunities (well, lets ignore the last example) but they require delicate negotiation, a fair amount of capital, and a lot of luck. I personally steer away from businesses that require more than two of those three, but many people have a higher risk profile than I do, and they get lucky at it. (Intellectual integrity bids me to point out that nobody knows how many people AREN’T successful at it.)

But it doesn’t have to be a huge risk to start a business.

The Myth of The Entrepreneur

There’s a huge Wild West mythos about business ownership. It’s risky, but it’s a challenge that separates the men from the boys! It’ll put hair on your chest!

It’s kind of hilarious the way people talk about entrepreneurship, really. Kind of like how people talk about how cool it must be to be a professional entertainer or athlete– there’s a complete disconnect between how people talk about it, and the reality of 16 hour days on set, or the brutal physical punishment they endure as a matter of course. Mel Brooks said in an interview he’d love to do another movie but his body can’t handle the length of the days on set. And here’s a picture of a professional soccer player’s ankles after a game. When people talk about million-dollar contracts and beautiful lifestyles, they’re missing pretty much everything relevant about the lifestyle of these people they pretend to admire.

In fact, a lot of what people think is important to be an entrepreneur actually isn’t that important– and the opposite is true as well. Many people praised Steve Job’s complete dickishness– they called it an unrelenting pursuit of vision, but you can pursue perfection without being an asshole. Once again, people called out the wrong traits and ignored the more mundane ones.

I’ve seen a lot of people start businesses. Whatever mythos popular culture like to trot out about entrepreneurs– that they’re these big risk-takers (as if they were skydiving in their free time)– that they’re unrelenting in pursuit of their goals (unlike every other successful person in the world) — that they’re mysterious and romantic (like cowboys in the old west.) Even the name, entrepreneur. That’s kind of foreign and mysterious, isn’t it?

Well, look, I grew up around both cowboys and entrepreneurs. I hate to be the one to break the news, but there’s nothing romantic or unknowable about either group.

(That’s why I like the term micro-business owner. A lot more concrete. A lot less bullshit associated with it.)

Having seen so many people start, run, and ultimately win or lose at business, I’ve become convinced of one thing. The only thing that determines whether your business survives— is whether you can hang on long enough to survive.

Sounds like a tautology, doesn’t it?

But look:

  • Some people have good marketing, and some people have shitty marketing. So marketing alone doesn’t make or break you.
  • Some people have good products, unique products, innovative or cutting edge products. Some people sell products that hundreds of other people sell. So it’s not the product that makes or break you.
  • Some people have business plans, forecasts, analyses; they crunch numbers and make plans based on data. Some people do none of that and operate purely on common sense and instinct. So it’s not planning that makes or breaks you.

And while I believe every business owes at least some of its success to pure luck, to the dice shaking out in their favor, I also think that those who were less lucky than most also did one other thing:

They mitigated risk.

The Art of Risk Management

You know how they tell you that when you have kids or a mortgage, you should get life insurance? It’s not because you are in any more physical risk than you were before. It’s just because the consequences of you getting flattened by a bus tomorrow are significant enough to warrant getting a backup plan in place.

If there’s one thing, I suppose, we can thank the “entrepreneur mythos” for, it’s the fact that most people have internalized the idea that “starting a business” = “risk.” And not just any risk, but a near-intolerable risk. That’s just hysteria and hyperbole talking, of course, but in unguarded and unexamined moments, we all tend to believe it, because it’s a cultural myth that’s very ingrained.

Which means that nearly everyone who’s gotten to the point of seriously considering going into business has generally taken precautions.

Sure, there are a few people who cash in their retirement funds to buy a restaurant even though they know nothing of the restaurant industry (and you know, if they buy a franchise like McDonald’s, they might still do alright.) But most people are mindful of the fact that they won’t be making much money, probably for a long time, and they take steps.

Are they still wildly optimistic? Well, yes. But I think you’ll find that’s a universal human trait, not a purely entrepreneurial one.

  • Most people start their business as a sideline until it’s big enough to support them
  • Many people have agreements with their spouse about how much risk and effort to take on
  • I’ve never met a business owner that wasn’t continuously learning more about business-related skills and their place in the market– even after decades in business
  • Most micro-business owners have a Plan B — not to mention a Plan C, D, and E. They think “Well, if this doesn’t work, then I’ll try that.” They rarely think “Well, that didn’t work. Guess I’ll just give it up.”
  • Unless all other options are exhausted, they never “bet the farm” on any given product or promotion. If they do, it’s one last Hail Mary pass before they pull the plug on the business.

I could argue that it’s damaging and outrageous how many news stories about successful business hinge on those darkest-before-the-dawn moments, but that’s kind of like arguing that having superhero cartoons makes kids think they can fly. It’s just a good story. Most people are wise to that without needing to test the theory.

So in the end, I think that success in micro-business can be yours if you just don’t make an unrecoverable screw-up, particularly in the first 5 years. Mostly, this means scale conservatively, watch your spending, and don’t go too far out on a limb. Don’t let your optimism get the best of you– have a little set aside for a rainy day, or that might be the screw-up that sinks you.

Will you be “super-mega-rich-retire-early” successful? Probably not. But you’ll be getting by, and getting by by being your own boss is significantly superior to working for someone else under any circumstances (IMHO). In five years, you won’t even remember the wet-behind-the-ears know-nothing you were way back when. Any number of things will become as natural as breathing– decisions you agonize over now. You’ll trust yourself a lot more, and the risks that were way too big to tackle when you started, you’ve just about grown into.

Success in a business is a lot like running a marathon. You just have to get across that finish line, somehow, someway.

You just have to make it five years. What’s so risky about that?

[ssbp]

1 thought on “Is Starting a Micro-Business REALLY as Risky As All That?”

  1. Bless you, Shanna! 
    Way to go after those mostly-mythical, and definitely exaggerated risks. 

    Another beauty-spot about micro-business: You don’t have to attract All The People – you only need to attract a micro-slice of them, and you get to decide what that slice looks like! And what they’re looking for – how you can serve particularly *them*.  

    Happy Monday ~

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