- Why It's Difficult for People to Quit Their Jobs and Start Their Own Businesses
- Make an Objective Decision About Starting a Business by Setting Aside Anxieties About Risk
- Determining What You Want Out of Life
- Having a Good Sense of What's the "Worst Thing That Can Happen" if Your Business Fails
- Researching the Business Opportunity
Determining What You Want Out of Life
The first activity people need to carry out is determining what they want out of life. This is a subjective task that is frequently more difficult than it seems. It is also something people must do for themselves. A mentor, spouse, parent, or book might help a person determine alternatives for her life, but ultimately a person's awareness of what she wants out of her life and career must come from within. Sadly, most people are not vigilant enough about determining what they really want and, as a result, spend precious years in so-so jobs and mediocre lifestyles. An important way of reducing risk in all aspects of life is for a person to determine his most important goals, passions, and aspirations and then focus his valuable time and resources in those areas.
There are many ways to go about gaining an appreciation for what's most important in life. Some people write a personal mission statement or values statement. Others acquire a sense of their most important aspirations and goals more gradually or subtly. Many people also reevaluate what's most important to them as the result of a significant life event, such as the birth of a first child, a health scare, the loss of a job, or a national tragedy like the terrorist attacks on September 11, 2001. These types of events jolt people into thinking through their most important personal goals and priorities.
There are at least two ways that determining what you want out of life can help you set aside risk anxieties and decide whether starting a business is right for you. First, people who have a good sense of what they want out of life tend to look at life holistically and are more likely to select careers or occupations that facilitate the entirety of their lives and aspirations, rather than settling for something that just earns them a paycheck. This is the reason that the vast majority of small businesses are classified as "lifestyle" firms (see Table 1.1). Rather than starting a business to accumulate wealth or gain prestige, the majority of people start businesses to pursue certain lifestyles and make a living at it.
An example of a married couple who started their own business for exactly this reason is Sue Schwaderer and Bill Lawrence. In the late 1990s, Schwaderer was making a six-figure income working for Oracle Software, and Lawrence was successfully managing three apartment buildings they owned in Evanston, Illinois, a Chicago suburb. Although they were making good money, they didn't enjoy their everyday life. "We were tired of never seeing each other and of too much business travel...too much traffic, too many people, too much noise," Schwaderer recalls.6 The two left their life in Chicago behind and opened up a 14-room bed and breakfast in picturesque Saugatuck, Michigan, a town of 1,000. Although the income from the bed and breakfast doesn't match what they were making in Chicago, they are happier and enjoy the less hectic pace of a smaller town. The desire to pursue what was most important in their life was stronger than the tug of loss aversion and the endowment effect, and they were able to meet their aspirations through business ownership.
The second way that determining what you want out of life can help you set aside risk considerations and decide whether starting a business is right for you is if an important aspect of what you want can only be satisfied by starting your own business. This scenario played out for Kimberly Wilson, the founder of Tranquil Space, a yoga studio located in Washington, D.C. Wilson had a successful career as a paralegal but did a lot of yoga in her spare time. She had trouble finding yoga classes that she liked, so she started inviting people to her home to do yoga and provide her own instruction. As her interest in yoga grew, she attended a 200-hour yoga training course in California and made the decision to start her own yoga studio. The transition from working for a company to self-employment was tough, however, and the silent pull of loss aversion and the endowment effect can be felt in Wilson's remembrance of how she felt when she completed her yoga training and returned home to quit her job and start her studio:
- "I came back from the training and cried. I knew I had to take the plunge, but it was tough to summon the courage. I am thrilled that I did not stick with my comfort zone."8
Another example of how loss aversion and the endowment effect can be overcome if an important aspect of what someone wants can only be satisfied by starting a business is provided by Doug and Lisa Powell. Doug and Lisa, who are both graphic designers, live in the Minneapolis area with their two children. The Powells were a typical family until 2004, when their daughter Maya, who was seven at the time, got sick. It turned out that Maya had type 1 diabetes, a disease that develops in a small percentage of children and young adults. A person with type 1 diabetes has a pancreas that does not produce insulin, a hormone necessary to sustain life. To treat her condition, little Maya would have to prick her finger to test her blood and take insulin one or more times a day for the rest of her life.
As you can imagine, Doug and Lisa Powell initially felt overwhelmed. As the parents of a seven-year-old type 1 diabetic, they needed to quickly learn how to help Maya manage her disease. To accomplish this goal, the Powells set out to try every device available to help Maya understand her condition and to help her cope with her daily regimen. They tried books, alarms, toys, games, medical alert bracelets, and other devices. After trying all these items, they were struck by two things. First, almost everything they found related to type 2 rather than type 1 diabetes. Although "type 1 diabetes" and "type 2 diabetes" sound similar, they are distinctly different diseases. Many of the tools and instructional aids available for type 2 diabetics don't work for people with type 1. The second thing that the Powells noticed was that the vast majority of the material and devices they tried were emotionally cold and intimidating—particularly for a young child. They didn't see how using any of these items could uplift Maya's spirits while teaching her about her disease.
Given what they had discovered, they decided to use their skills as graphic designers to develop their own materials to educate and encourage Maya and help her manage her daily regime. They started sharing the materials with other parents whose children had type 1 diabetes and were surprised by how positive the feedback was. As a result, they decided to start a business, named Type 1 Tools, to share their material and their passion for helping children with type 1 diabetes with other parents and caregivers. Word quickly spread about how effective the Powells' Type 1 Tools are, and people with type 2 diabetes started asking for similar material. The couple obliged and refocused their company, renaming it Type 1 and Type 2 Tools, to help children and adults with both types of diabetes.9
Kimberly Wilson and Doug and Lisa Powell all had good jobs and promising careers but developed a keen sense of what was critically important to them in their lives. For Wilson it was starting a yoga studio, and for the Powells it was helping children with type 1 diabetes cope with their disease. In both cases, they couldn't fulfill their most important ambitions through traditional employment or by passing their ideas along to someone else. Starting a business was the only way they could accomplish what was most important to them. They, like other business owners, were able to overcome the natural tendency to avoid risk and start their own businesses by focusing on the more important things in their lives.