Effectuation: Affordable Loss Principle

We’ve shared elsewhere on this blog the story of a young entrepreneur – in the sense that he had lots of great business ideas, not so much in that he possessed an entrepreneurial mindset – who stopped working on his business idea because he didn’t see the point of working on it if he wasn’t being paid to do it. No judgment, just an important lesson: He determined that his ideas weren’t worth pursuing unless he could be paid to do so, and that’s the concept of acceptable loss. True entrepreneurs have a much higher tolerance for risk and loss than that, and it is up to you to set and evaluate your acceptable loss in launching or growing your business.

Once upon a time, before there was Master of TACT, there was just the founder – spoiler alert: it was I – in a basement office with little more than a laptop, some software titles, and some business know-how under my belt. With years of information systems and technology experience, I was caught a little off-guard when a colleague asked me to help her and her business partners with their bookkeeping. We struck a bargain: They would purchase Quickbooks for me to use for them and other future clients, and I would charge half the going rate to cleanup and migrate their several Excel workbooks to Quickbooks.

For me, the prospect of growing in the area of bookkeeping and accounting with opportunity to use the software to secure other clients made the low fee an acceptable and affordable sacrifice. Note, too, that my colleague and her partners were making a sacrifice right along with me: they accepted the risk accompanying my learning about the contracting business on the job and were willing to pay $500 or so to give me the software I needed to do the job. That’s the idea behind affordable loss and acceptable risk or sacrifice, and it’s just as true when your venture involves creative and strategic partnerships with others, something we’ll discuss in another post.

Have you thought about what you’re willing to sacrifice, lose, risk or tolerate to get your business off the ground? Remember the cautionary tale we shared earlier: if your risk tolerance and acceptable loss threshold are low, entrepreneurship may not be for you. Entrepreneurs spend countless hours – including sleepless nights – pouring their energy into their business ideas. They also experience opportunity costs in ways non-entrepreneurial people can’t even imagine: time, energy, effort, money, social, professional, and personal sacrifices are the hallmark of stalwart entrepreneurs. Are you one of them? What’s your affordable loss threshold? How much are you willing to give up to see your idea through to fruition? Share some of the things you fear losing or that you’ve already sacrificed in the pursuit of your dreams. Comment below or slide into our email via our Contact page.