Skip to content

The E-Risk Myth

September 22, 2010

Friends keep telling me, “oh, I admire your interest in entrepreneurship but I’m just too risk averse to ever start my own business.”  As soon as I hear the comment I quickly rush into my encouraging lecture that I’ve taken from a speech I heard by Steve Barsh, a managing partner of Dream It Ventures, a business incubator.

Steve’s main concept is that good entrepreneurs are just as risk averse as the average corporate type.  In fact, we’re fundamentally in the business of risk calculation, risk evaluation and risk management.  Entrepreneurs should not come up with an idea and immediately pour money into it while just hoping for the best.  To the contrary, entrepreneurs ought to be extremely diligent about assessing the risk associated with our ideas, doing tons of research to evaluate that risk and only then should we act on our vision and put money into it.

After our team came up with the CdT concept we wrote a short but thorough business plan.  In writing it we uncovered the main assumptions that, if untested, would be the biggest risks.  For CdT the foremost assumption that came out of this exercise was that we could sell enough tacos in University City to support our operation.  Rather than staying seated behind our laptops and taking “conservative” guesses about the tacos we could sell in an hour we set out to test this assumption to see for ourselves.  First, we went to a number of food trucks all around University City and sat outside counting the number of customers and average meal price at each spot.

Next we set out to test our pricing assumption by having friends come over to Peter’s apartment and actually pay for their food.  Having friends come over once was okay but we weren’t comfortable with our pricing until people came multiple times to our tasting events paying for their food each time.  Once we established the average customers/hour at local trucks and our potential customers’ willingness to pay we plugged those numbers into our financial model to see what our daily sales would likely be.  We then went to the food wholesaler and priced the ingredients we’d need for our recipes.  At this point we could gauge profitability and we finally felt comfortable with our plan.

It’s not to say that we weren’t nervous about signing the final check to pay for the truck (the largest chunk of our initial investment) but after taking all these steps we didn’t feel like this was a big risk anymore – we knew what we were getting into.  That’s not to say we haven’t faced about 100 obstacles we never could’ve imagined (or calculated in the financial model) but at least we thoroughly analyzed the key risks.

Advertisements
One Comment leave one →
  1. September 23, 2010 12:05 am

    Glad my comments were helpful and you put them to good use!

    Steve Barsh.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: