Is the Risk Worth the Reward?

Christina Cardinale; period 1.

The saying, “You gotta risk it to get the biscuit” can sum up what it means to break away from the corporate world and start a new business. Starting a new business can mean leaving the security of a corporate job and going into the world knowing that this new occupation could either be success or failure. Lots of people often determine taking this leap of faith based on analyzing wants and facts. So the question is, how do incentives and opportunity costs help us to decide whether we will leave and start our new business versus keeping put?

From Naked Economics, it states, “Individuals act to make themselves as well of as possible.”[1]So in other words, people perform actions based on their incentives. The definition of incentives is, “something that motivates an individual to perform an action”. [1] Bottom line is that incentives matter. When starting a new business, the person will have his or her own incentives to why they want to create something new. Starting in April 2017, the UK will increase their tax rates in places 415%.[2] When entrepreneurs are looking at this new tax rate, they might see it as a disincentive to try and start a business because the taxation requirement is too much. Whether the entrepreneurs’ incentive is to make more money, work less hours, or make a difference in the world, all of those are incentives that help them decide what their next action will be.

Opportunity cost is also another factor entrepreneurs take into consideration when creating the new occupation. Charles Wheelman states that an opportunity cost is, “Is a benefit that a person could have received, but gave up, to take another course of action”.[1] Opportunity costs are very important in deciding if the risk is worth the reward. One author stated in order to start his own business, he would lose 50% -75% of his income in the first three years from having to pay and take time out of his life to start it up. His six figure salary, benefits, respect, and admiration from his co-workers would not carry over when he started his new business from scratch, thus he decided that his opportunity cost was too high of a risk to leave the security of his job.

Local entrepreneur Chis Jabs proves that he started a new business based on weighing his incentives versus his opportunity costs. Ten years ago Chris was working for a computer IT company making about 300,000 dollars a year. Wanting to advance technology even farther, he wanted to leave his job and help create code for internet streaming. When trying to figure out his next move, he weighed his opportunity cost of no health benefits and money versus what the rewards from his success. It took him 2 years to finally get his company going and he ended up making 300 million dollars from it. When asking him about those two years without a steady income or health benefits from a corporate job, Chris told me that even though the opportunity cost of his job meant he might have to save more and spend less until his company hits off, he would rather take the risk because he knew that in the end be his business would successful.

Together, incentives and opportunity costs affect our decisions on whether to start a new business or stay in our corporate job. Ultimately, people weigh these two factors to figure out if the risk is worth the reward.

[1] Wheelan, Charles J. Naked economics: undressing the dismal science. New York: W. W. Norton, 2010.

[2] Investor, The. “Opportunity cost when starting a business.” Monevator. May 16, 2009. Accessed March 31, 2017. http://monevator.com/opportunity-cost-when-starting-a-business/.

[3] Card, Jon. “Entrepreneurs face biggest business rates change in a generation.” The Guardian. September 30, 2016. Accessed March 31, 2017. https://www.theguardian.com/small-business-network/2016/sep/30/entrepreneurs-biggest-business-rates-change-generation-london.

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