Risk is part of the formula for entrepreneurial success – so is the right financial advice

When statistics show that more than 70% of small business fail in the first two years – it’s confirmation that starting a business is itself a risky act. It is not surprising, then, when you review the literature around entrepreneurship that risk-tolerance is defined as one of the key traits for a successful entrepreneur.

According to a 2017 study conducted by Harvard Business School, the weight of the evidence from their research suggested that individuals with greater risk tolerance were more likely to enter entrepreneurship. “The realities of business venturing (and subsequent rates of failure) make it quite reasonable that a would-be entrepreneur needs to be one who can tolerate a lot of risk, but it is very important to push onwards,” the report said.

However, in a country like South Africa – that is plagued by low economic growth prospects and a stubbornly high unemployment rate – many pursue entrepreneurship to survive and not because they are following their natural ambitions. They do this regardless of their appetite for risk because they do not have the luxury to choose to walk away from the risk. Add to this the inadequacies of the local entrepreneurial landscape, which is under resourced and lacks adequate support structures, and you have entrepreneurs who are under immense pressure and struggle to manage risk.

Tshego Bokaba, Group Corporate Social Investment Manager at Momentum Metropolitan Holdings, works with many entrepreneurs through programmes supported by the Momentum Metropolitan Foundation and she underscored the importance of the right financial advice for entrepreneurs.

“Given the many business growth inhibiting factors that are outside the control of business owners, such as load shedding and water issues, making solid financial plans with a financial adviser, saving where possible and finding ways of upskilling yourself are the best ways to gain a solid foothold on the future.”

This, of course, includes the right financial advice to mitigate risk in business – no matter what your risk appetite.

It was Jeff Bezos, founder, executive chairman, and former president and CEO of the world’s largest e-commerce and cloud computing company Amazon who famously said this on risk in an interview: “Good entrepreneurs don’t like risk, they seek to reduce risk. So starting a company is already risky and then you systematically eliminate risk step by step in those early days until you can get a company.”

And as the economy stagnates, it puts many under pressure to have side hustles  – which are also becoming a necessity rather than a choice. The 2023 Momentum SMME and Side Hustle Report has highlighted that making the move from an employee/side hustle to becoming self-employed requires individuals to take risks. Implicit in this is the big possibility of failure which unlocks high levels of fear of failure.

“We need to bear in mind that many of the people running side hustles are not born entrepreneurs and are not running a business for the love of it, but out of sheer necessity,” started Monique Schehle, Insights Lead: Strategy and Planning at Momentum Metropolitan Holdings.

“The toll on mental and physical health of running a second and sometimes third business can be serious,”

The time and effort that is needed to establish and sustain a side hustle is considerable – even a small back bedroom business needs attention, and this means time away from the family, and levels of exhaustion that detract from 9-5h work performance.

The 2023 Momentum SMME and Side Hustle Report confirmed that around 14 per cent of South African households are engaged in a side hustle, with 12 per cent of these reporting they are running two or more businesses. 

“What used to be categorised as passion projects for some determined entrepreneurs are now business ventures that are topping up people’s incomes,” said Schehle.

Even for those with side hustles – the right financial advice can go a long way in easing some of the stress and providing expertise on how to better manage your money and reduce the risk to yourself, finances and even your family.

The report also highlights how even for those with who make a real go at their side hustle, that transition to becoming self-employed is itself a risky act as the large probability of failure can unlock high levels of fear. And this puts entrepreneurs back at square one. Embracing risk is a part of the journey of every successful entrepreneur and the right advice can help entrepreneurs get comfortable with risk and confident in navigating it.

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