The Paradox of Entrepreneurship

It is easy to take risks when you have nothing to lose; by definition, the action ceases to be risky if you only can gain from its outcome. Hence, entrepreneurship is less risky to those which have less.

Less doesn't necessarily just refer to financial wealth; those with less friends, family and other social obligations also have less to lose (in terms of relationships). Those without full time jobs are less affected by the loss of time. Simply speaking, for most people the opportunity cost of entreprenurship increases proportionally with the advancement of their lives.

This could be one of the reasons why many new immigrants become entrepreneurs. Many new immigrants have literally nothing to lose, and have a social community which understands the need for personal sacrifice in the hope of achieving something greater. Hence, entrepreneurship is a very viable opportunity to a new immigrant, especially compared to the other career options they have traditionally been offered.

Young adults have many of the same characteristics as new immigrants; both have little to lose from attempting to start a new business, especially so when compared to their alternative career choices. Both also have difficulty obtaining financing at reasonable rates, and a lack of relationships as well as experience in the local business environment.

This is the first paradox I see in entrepreneurship; although it is easier to attempt to launch a business when you have nothing to lose, the very fact that you have nothing to lose weighs negatively against your chances for success. In other words, local business knowledge and access to capital significantly increase your chances of success - but if you have both these things, then you have something to lose, which makes it more risky for you to become an entrepreneur.

Many Governments have recognized this paradox and as a solution have created "business development" institutions to provide easier financing, mentor programs, and general new business support to entrepreneurs. While these offerings do solve some of the issues for those with less, they do not significantly help those who have already access to credit / solid business knowledge; those most likely to succeed in their new business ventures.

This is the second paradox of entrepreneurship (in Canada, at least) : those who are most likely to succeed in starting their own business are provided the fewest Government incentives to do so.

If Governments want to encourage the launch of more businesses by individuals further down their career paths (Whether Government financial support of entrepreneurs is right/wrong is a separate discussion), then Governments must ensure the incentive programs offered are in line with the pain points of the target demographic. For example, unlike with new immigrants and fresh graduates, people with developed careers normally have large financial obligations (mortgage), entered into initially under the pretense of a regular income. Governments could help alleviate this issue by introducing tax deferral options for founders of early stage companies, which would lower the short-term financial risk an entrepreneur has to take on.

There is no question entrepreneurship is a gamble - if there wasn't any risk involved, then everyone would likely be their own boss. Most governments have decided that supporting entrepreneurship is important to their economies - my question is - are they supporting the right people?