Company creators: overcoming the fear of financial risk

If you’ve never started your own business, there’s a good chance that at some point in time, you’ve thought about it. 

The idea of quitting a full-time job and launching a new, exciting business project is an alluring one for many. What’s not to like about the freedom of ‘being your own boss’ and the prospect of making lots of money out of your great idea?

And yet, the entrepreneurial plans of many salaried workers never make it past the pipe dream stage. One common reason for this is the fear of failure and, in particular, the fear of financial instability if things go wrong.

In this article, we’ll look at this barrier to entrepreneurship and at ways it can be overcome. We’ll also hear from some successful entrepreneurs who confronted the fear, who took the risk and who lived to tell the tale.

Research findings published in the Harvard Business Review reveal 7 sources of fear among the British and Canadian entrepreneurs who took part in the study:

• financial security 
• ability to fund the venture 
• personal ability/self-esteem 
• potential of the idea 
• threats to social esteem 
• the venture’s ability to execute 
• opportunity costs 

If some of these worries center around abstract and/or personal concerns, two concrete fears stand out: the fear of financial insecurity and the fear of not being able to fund the business idea.

It’s not difficult to see why.

How do you cover the start-up costs of setting up a small business? Do you put your savings on the line? Do you risk taking out a bank loan or borrowing from friends?

Even if you’re looking to go freelance as a micro-entrepreneur, you may not have much to pay in start-up costs but what if your freelance income turns out to be much lower than your current salary?

Starting a business throws up endless questions like these, problems that need to be solved. Luckily, problem-solving is what drives many successful entrepreneurs — Spotify’s Daniel Ek talks briefly about that here — so let’s look at some potential remedies against the fear of financial failure.

“Nothing in life is to be feared. It is only to be understood.”

Such a methodical approach is perhaps to be expected of Marie Curie, the person attributed with the above quotation.

If facts, data and hard information are natural enemies of fear, then they become important weapons in your fight to overcome it. The more you prepare the groundwork for your project, the more you know about your market and the more experienced entrepreneurs you talk to, the less space there is for fear to undermine your business idea.

By activating your network of friends, family and professional contacts, you can access their experience and acquired know-how, and this may consolidate your confidence that the venture will succeed. Investigating the existing players in your intended market can help you assess how much you will need for both start-up and running costs.

What’s more, the more watertight your proof of concept, the easier it will be to find outside investment.

There may be areas outside of your skillset that will need to be outsourced. For example, you might not be a qualified accountant or bookkeeper, but there are plenty out there you can hire. Alternatively, you can find automated, online solutions like Qonto that help you keep on top of your accounting obligations.

Of course, outsourcing inevitably comes at a cost but investing in such outside expertise should bear its fruits in the longer-term. This is particularly true where the law is concerned; a chartered accountant or lawyer may cost money up front but their advice and knowledge can almost certainly save you much more further down the line. They can help you navigate the French legal and tax systems, which for the non-initiated can be an intimidating minefield to get lost in.

One option for unsure entrepreneurs is to develop their new business as a “side hustle” i.e. getting it off the ground whilst continuing to carry out a full-time job. The most obvious advantage is the financial safety net of a salary to tide you over until you’re sure your business will work. It’s at that point that you hand in your notice.

Growing your business as a side project allows you to learn gradually about how it will work and to identify any problem areas. You can open a business account and discover what you need to know about bookkeeping and admin, for example. You can make all the mistakes common to new business owners without having to deal with the financial pressure. As Susie Moore, author of side hustle manual What If It Does Work Out? puts it, “When we’re strapped for money we don’t make good decisions.”

Juggling a full-time job and a side project will also test your ability to organize your time efficiently, which is great practice for the day you do go full-time as an entrepreneur.

You’ve got a great idea and you’re sure it will work. But how on Earth are you going to get hold of enough money to get up and running?

Financing the entire project yourself can be an attractive option if you have the resources, as it allows you the freedom to run your business as you see fit.

If you don’t wish to risk all of your savings, injecting part of your available personal funds into the project may still be a good idea as it shows potential investors that you are putting your neck on the line and that they are not going to carry all the risk on their shoulders.

Even if you have little in the way of savings to finance your project, there are many other avenues you can explore to raise the funds you need to get started:

• State aid. There is an abundance of financial aid programs and initiatives in France on a national, regional and local level. Researching them requires plenty of digging but we’ve put together a comprehensive guide here.

• European aid. The European Commission provides a number of initiatives designed to improve SMEs’ access to finance and markets. On the EU’s Access to Finance portal, you’ll find a complete list of agencies and organizations offering loans, guarantees and equity funding.

• Local incubators and accelerators. Not only do incubators and accelerators provide help with finding resources, they are also helpful in building relationships with mentors, investors and other local startups. Incubator List gives a selection of the biggest players nationally, but you should also see what exists in your local area.

• Bank loans. You should always shop around for the most attractive interest rates. There are also alternatives to the traditional Main Street banks, including online solutions like Qonto’s partners, who offer financing that’s fast, simple and 100% online.

• Loans from family or friends. This is a path taken by the likes of Jeff Bezos, Elon Musk and Donald Trump. These business relationships can have an extra level of built-in trust and mutual understanding. It’s advisable all the same to treat investment from someone you know just as you would with someone you don’t, with a contract that map out the agreement.

• Crowdfunding. This is an inexpensive way to raise capital and have the added benefit of creating a community of potential customers around your product or service. Crowdfunding can allow you to create a buzz and spread the word from the very start of your project. Les Pépites Tech and WiSeed are two places you can start your research for crowdfunding in France.

• Find a partner. You can share the financial risk by combining your strengths with those of a partner company in the same industry. The mutual agreement can be relatively flexible as you don’t need to create a new business entity. Entering into a joint venture allows two (or more) companies to pool their resources and compensate for each other’s weaknesses.

• Angel investors/Venture capital. If Venture Capitalists (VCs) tend to invest in established businesses, Angel investors are a more likely source of funding for companies in their infancy. As well as funding, they are a valuable source of mentorship, business experience and networking opportunities. France Angels has a database of Angel investors in France, where you can search region-by-region. For women entrepreneurs, there is also Femmes Business Angels.

However, before you explore any of the above avenues for funding, there is one thing that you will certainly need: a solid business plan.

Starting a company without a business plan is like wandering off into the wilderness without a map, compass or GPS. It might work, but good luck to you.

A good business plan will prove to potential investors — whether it’s your parents, banks, VCs, Angels or just about anyone else — why they should give you funding for your business idea. If they’re going to invest wisely, they’ll need to know how much money you need, how you’re going to spend it and how you’re going to make them a return on their investment.

You’ll find plenty of ready-made templates online although be wary of producing something too generic. Your business plan should reflect your business and your market but should include:

• An executive summary
• An outline of your product or service
• A market analysis
• A marketing strategy
• Financial forecasts

You can find a guide on writing business plans specific to France here (in French).

Fear of the unknown is normal and healthy, and can be conquered with research, planning and good old-fashioned hard work. Harnessed properly, fear can be one of the most powerful motivational factors for entrepreneurs starting out.

If you believe in your idea and have the data to back up that belief, there are plenty of sources of finance out there for you to tap into.

Are you ready to embark on your own entrepreneurial journey? Open a 100% online account in less than 10 minutes. 

Read more:

How fear helps (and hurts) entrepreneurs - Harvard Business Review

5 Tips for Starting a Side Hustle From Experts Who’ve Done it Before - Nextadvisor

What If It Does Work Out?: How a Side Hustle Can Change Your Life — Susie Moore

France’s Fédération Nationale des Business Angels 

How to write a winning business plan - Harvard Business Review