ENTREPRENEUR

An Entrepreneur's Biggest Cost

When launching a new product or company, an entrepreneur must consider their biggest cost - the opportunity cost. Opportunity cost is an economic term that is defined as the cost of passing up the next best alternative when making a decision. For instance, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose for which the asset could have been used. In the entrepreneur’s case, this asset typically includes the entrepreneur’s time and money.

For an individual currently working in a corporate position, the opportunity cost of launching their own venture is typically the financial security that their corporate position affords. Fortunately, this security could be mitigated by attaining funding for the venture and setting the same salary as the prior position. However, if the venture fails, the individual may have lost the opportunity to return to the corporate position

and/or does not realize the steps up the corporate ladder that they may have made had they stayed in their prior position. Likewise, if they chose to pursue one entrepreneurial opportunity rather than another, the individual may have lost the opportunity to try to launch the other opportunity.

Opportunity cost is related to the risk/reward tradeoff that is implied in entrepreneurship. The risk/reward tradeoff implies that the higher the risk, the higher the potential reward. Opportunity cost comprises a large part of the “risk” in the risk/reward tradeoff, although it doesn’t include many intangible factors such as potential embarrassment caused by taking capital from friends and family and having the venture fail.

Each entrepreneur has a different opportunity cost such as the amount of their salary should they currently be employed elsewhere. Likewise, companies have different opportunity costs when determining whether to

launch new products, services, etc. Identifying the opportunity costs, analyzing them, and then making the optimum decisions is a critical process for entrepreneurs and small and large companies alike, and can be a critical factor in the long-term success of a venture.

Since its inception, Growthink Business Plans has developed over 200 business plans. Growthink clients have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share. Growthink has become the firm of choice for venture capital firms, angel investors, corporations and entrepreneurs in the know. For more information please visit http://www.growthink.com or visit our venture capital placement site at GT Venture Capital.

FREE REPORT The Ultimate Home Business
Become a financial trader from home no experience necessary
Learn The Secrets That Made Trading Legend WD Gann Millions

ENTREPRENEUR ARTICLES

Are You a Home Based Business Entrepreneur |Innovative Entrepreneur Ideas |What Does It Take To Be an Entrepreneur |Seven Characteristics Of A True Entrepreneur |Entrepreneur Success Stories |Times Are Changing for Woman Entrepreneurs |How to Be a Web Entrepreneur with No Capital | Entrepreneur

HOME BUSINESS ARTICLES

Free Help Starting a Home Business |Diary of Beginning Home Business Entrepreneur Part 1 |Is A Consumer Printer Sufficient For Home Business |Home Business Network Marketing |An Ideal home business Home Page |Your Work at Home Business |Faster home business profits | Home Business

RELATED PAGES
FREE BUSINESS ASSESSMENT | BUSINESS BASICS FOR SUCCESS | MARKETING THE KEY TO BIGGER PROFITS | ONLINE BUSINESS | HOME BUSINESS | OFFSHORE | LEGAL ADVICE | OUTSOURCING | SALES | MARKETING | BRANDING | CUSTOMER SERVICE | STRATEGIC PLANNING | ADVERTISING