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Thinking Like An Entrepreneur
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Chapter 3
Men Are Cheaper Than Guns


Chapter 4
Intellectual Capital And Bootstrapping


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Thinking Like An Entrepreneur


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A Younger Person Wants To Start a Business, Wonders If Taking Risks Pays Off, In General, and Worries About How To Pay Back Borrowed Money If The Business Fails

  That you are young is an advantage to you in taking the risk to start your own business. If you would fail, you would still be young enough to build a career in another field or start another business in another direction. One way or another, you would have time to recoup lost earnings. Look at your first business as partially a learning experience. Try to make some money, yes, but learn about business and don't over extend yourself financially.

  I like to see new entrepreneurs who are actually concerned about being able to pay off a loan if their business would not take off. This is a good sign of responsibility. Too many young people just want start up funds and never consider what happens if all doesn't go according to plan. Maintaining this attitude of responsibility will help you in getting the funds you seek. Banks seldom borrow to smaller start up companies, venture capitalists are only interested in start ups with explosive growth potential ($10 million in revenue in 3 years for example), so you will need to really hunt to find your financing options.

  Before you raise any funds, you want to evaluate the opportunity in depth. You must make an estimate of the profit margins you will be able to maintain. You want to get a handle on what is reasonable level of sales for the business you are considering (and then how much of this sales revenue is retained as profit). Estimating sales is never easy, but it helps to have reasonable guesses as to what might likely happen on the upside and on the downside.

  Having conservative estimates of sales should help you from overextending yourself financially. You will not take on large overhead, etc. in anticipation of huge and unrealistic sales that never materialize. Never spend money in anticipation of getting rich.

  As a general rule, I believe you are rewarded for higher risks you take in life. No one who ever achieves real financial success does so by being an employee. It is also easier to do what you want, if you run your own business. But, there is intelligent risk taking (where you work to understand the business opportunity you contemplate, you predict profit margins, etc, and you try to start a business endeavor that puts the odds of success in your favor) and there is foolish risk taking (not thinking before you start an endeavor, not considering likely margins, etc.)

  You can do a lot to reduce your risks 1) by studying the opportunity. 2) by working really hard to bring your dream to fruition. The consequences are strongly influenced by your own efforts. Through study and hard work, you can reduce the risk of your ventures significantly. This is often what separates those who succeed from those who fail.

  There is a great book, Against the Gods by Peter Bernstein that covers the history of risk. It is true, when we learn to evaluate risk, we are no longer at the mercy of the gods. We are in control of our lives and can make our life decisions based upon rational criteria. Finally, do learn simple financial decision making. This will enhance your chances of success significantly.