August 30, 2023
We hear many stories about celebrity entrepreneurs—big names, big thinkers—who are unfrazzled by extreme situations and willing to take on serious risks. They may be fearless pioneers, avid gamblers, or heirs to substantial capital, having the financial freedom necessary to go all in on their new ventures.
However, while these cases are intriguing, they are few and far between. In fact, history has shown that, when it comes to entrepreneurship, those willing to assume a moderate amount of risk (as compared to extreme risk) have an upper hand—and for good reason.
In business, the savvy entrepreneur balances risk in one area with caution in another. They are logical in their thinking and intentional with their actions. This is particularly true for elite professionals who are starting their own side businesses for the first time.
Manage entrepreneurial risk through diversification
Elite professionals who start side businesses while maintaining their employment are likely to go through an optimization exercise similar to that of a financial portfolio. A financial portfolio is comprised of different investments with varying risk profiles, and its overall risk is managed through diversification—limiting exposure to any one type of asset.
Similarly, smart entrepreneurs tend to engage in a variety of activities (some more risky, some less), generally keeping themselves to a predetermined combined risk threshold according to their personal risk tolerance.
In his book Originals, world-renowned author, professor, and psychologist Adam Grant presents many examples of highly successful individuals across time and in various settings who used their primary employment as a hedge against uncertainty:
In 1893, Henry Ford began laying the foundation for his automotive empire but kept his employment as a chief engineer for Thomas Edison until 1899.
In 1922, T.S. Eliot published one of the 20th century’s most significant poems, The Waste Land, but remained employed at a London bank until 1925.
In 1964, former track star Phil Knight (co-founder of Nike) started selling running shoes from the trunk of his car but kept his job as a consultant until 1969.
Beginning in 1998, Sara Blakely took a conservative approach to introducing a new product, footless pantyhose, saving money on all fronts and even writing her own patent application. However, it wasn’t until the year 2000 that she quit her job as a National Sales Manager of an office supply company and officially launched Spanx.
In 2000, John Legend released his first music album and performed concerts at night, but he didn’t leave his management consultant job until 2002.
These individuals reached the pinnacle of their professional careers outside of their primary employment, but they maintained their core jobs for the purpose of financial security until they were ready to fully transition.
A sense of security can lead to great things
To most people, there is a secondary benefit of maintaining a sense of security: freedom to be truly visionary. It’s human nature to function most effectively in an environment with limited uncertainty. Entrepreneurs are no different. They need strong mental anchors.
Preserving a consistent income stream through full-time employment is a practical way to handle the uncertainty of starting a new business. It’s a safety net—as much financial as it is emotional. And rather than rush toward immediate (yet often unsubstantiated) success, this strategic approach allows you to bring your vision to life on your terms and according to your timeline.
Also, consider this: What if the business idea doesn’t pan out?
So long as you keep your current employment, you can continue to rely on earnings from your primary position to maintain financial stability.