An Entrepreneur's Biggest Cost

Dave Lavinsky
 


Visitors: 445

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 .

(430)

Article Source:


 
Rate this Article: 
 
12 Low Cost or No-Cost Techniques to Snag Lucrative Freelance Writing ..
Rated 4 / 5
based on 5 votes
ArticleSlash

Related Articles:

Biggest Employment Change of All - Becoming an Entrepreneur

by: Janice D. Byer (February 20, 2005) 
(Home Based Business)

The Single Biggest Mistake Due to Which You Will Lose Your Ex Forever! Do Not ..

by: Pushpa Pal Singh (October 22, 2008) 
(Relationships/Conflict)

Entrepreneur Days Review Hands on Training For Home Schooling Entrepreneur ..

by: Carly Sendagaya (July 16, 2008) 
(Reference and Education/Home Schooling)

Success As an Entrepreneur Secrets of a Successful Entrepreneur

by: Martha Meagher (July 03, 2008) 
(Business/Entrepreneurialism)

Biggest Cruise Ship Learn All About the Biggest Cruise Ships in the World

by: Gordon Banks (July 21, 2008) 
(Travel and Leisure/Cruising)

From Merely Entrepreneur to Serial Entrepreneur

by: Akhil Shahani (July 16, 2008) 
(Business/Entrepreneurialism)

Trading Tips No 6: The High Cost of Low Cost Stock Market Information

by: Bill Poulos (May 13, 2005) 
(Finance/Stocks Mutual Funds)

Low Cost Printing for Schools - Taking Total Cost of Ownership to the Classroom

by: Duncan Vass (May 10, 2007) 
(Computers and Technology)

What is the Cost of the Medifast Diet? The True Cost of Losing Weight Revealed

by: Tina Bardo (July 02, 2008) 
(Health and Fitness/Popular Diets)

12 Low Cost or No-Cost Techniques to Snag Lucrative Freelance Writing ..

by: Beth Erickson (October 31, 2005) 
(Writing and Speaking/Writing)