Risk-reward ratio is a concept in investing that measures the potential return on investment against the potential loss. Essentially, it helps you to manage your overall risk exposure by assigning weights to different asset choices.

Linking Risk-Reward to Careers

I was thinking about this in relation to corporate careers.

In hiring senior executives, I’ve had discussions around equity. Some of them want equity in our organisation, which is to be expected. But surprisingly, they want an assured salary too and don’t want to pay for any part of the equity, whether in kind with work contributions over a number of years or by buying additional shares over time.

Thus, their risk appetite is very low, and they should never have contemplated entrepreneurship to begin with.

Entrepreneurship and Assumed Risk

There’s nothing wrong with being a career executive. Should you attempt to transition to entrepreneurship, either by starting a business or taking equity in a company, it comes with an assumed risk.

What if the idea fails and you end up with nothing, or what if you suck at the job? What if there’s a clash of visions with the founder? These are all risks. And it comes down to this—are you willing to take a bet on yourself?

In an earlier post, I wrote about Wealth by Corporate Association and how much of the structure that executives enjoy is paid for by their companies. When they leave, they are suddenly forced to rely on their own wits and capacities.

When you leave an organisation to start or lead an enterprise, the success or failure will be on you. Even when you’re navigating the toughest stakeholders, it’s still down to you to leverage your wisdom and influence, as Nigeria’s lead for tax reforms recently demonstrated in pushing through difficult regulation. He came from corporate. Not many executives are willing to accept that level of responsibility or risk-taking.

Taking a Calculated Approach

So, here’s my advice if you desire to run something of your own but want a soft landing: start early, but not too early.

If you’ve spent 10 years in corporate, chances are you’ve attained a measure of stability. You can pay for accommodation and daily expenses. Maybe you even have a spouse whose income provides an additional buffer. So, you can take calculated risks.

Using that base, dip your toe into entrepreneurship by requesting to run a profit & loss unit in your organisation. But to make the experience real, assume responsibility for sales and costs. Also, give up a percentage of your assured salary for commissions. Suggesting and negotiating such an arrangement takes guts.

If there are no opportunities internally, consult for or partner with a non-competing business. Again, tie some level of pay to results or take equity that only vests upon profitability.

Another option is to volunteer with an NGO in an operational or product capacity. While the risk is low—there’s no financial consequence to you—the experience helps you build your entrepreneurial muscles.

Taking the Plunge or Not

Finally, if money is not your immediate problem and you choose to work in an entrepreneurial company, then ask for equity with your chest and be willing to accept some deferred compensation.

After all, if you grow the pie big enough, the payday will eventually come. If not, at least you would have learned that entrepreneurship is not easy, and you will be better prepared for your next time around the block.