‘The Brexit Effect’ in Business

A human tendency we often tend to ignore in business is what I call the “Brexit effect”. This is when some people find fault with a product/service and spread their discontent to their near and dear ones. This tends to spread quickly and eventually becomes a movement. This may be a difficult task as negative feelings spread much faster than positive ones. The mood in this group of people becomes one of “we want change”, without assessing clearly the alternate they may be changing to. This effect can prove to be a big risk for any established business and must be addressed before it gains significant traction.

This effect may sound unreasonable and trivial. However, I feel this is the effect which has had serious implications on public decisions in the recent past (some events which we all know about ;) and is a problem established businesses are always grappling with.

Comparison of Risks of an Entrepreneur & an Investor

With a startup comes uncertainty and risk. Both an entrepreneur running the startup and an investor investing in the startup bear the risks associated with the startup. So who takes the bigger risk?

To answer this, we need to assess the risks of either.

Risks of the Entrepreneur – An entrepreneur puts in a little bit of money (generally) and a lot of time and effort. So the biggest risk of an entrepreneur is the loss of time. Since time has an opportunity cost, the value of the risk can be quantified using that metric. A premium might be added to take into account the emotional and physical distress the entrepreneur goes through during the startup journey.

Risks of the Investor – An investor invests in a startup and hence the biggest risk of the investor is the loss of money put in.

To compare the risks, we need to assess whether the entrepreneur’s time and effort is higher or lower than the investment put in by the investor.