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.
If you have seen me speak you will know that... Read More
Being an entrepreneur and running a successful home-based business is... Read More
Living in the twilight zone has its advantages. In the... Read More
"Real champions believe in themselves even when no one else... Read More
Q: I'm thinking about starting a business since that seems... Read More
Communication is the key to vendor relations. In your small... Read More
Buying into a franchise is a great way to be... Read More
With billions of dollars of venture capital residing down the... Read More
EntrepreneurAn entrepreneur is a man who organizes and manages the... Read More
Franchise companies are not born they are made and when... Read More
A business owner is thoroughly responsible for their own financial... Read More
Successful business owners and managers need to be very clear... Read More
The "Great One" said it bestHockey legend Wayne Gretzky, when... Read More
Print off this page, take the quiz and find out... Read More
It is only natural that when you start a business,... Read More
The first step in deciding whether to start a business... Read More
It never ceases to amaze me. Almost everyone peers into... Read More
For those of us who grew up with parents who... Read More
When I ask why you don't start your own business,... Read More
Many of us slave away for years for one uninspiring... Read More
Define for yourself what an Entrepreneur is:What makes you think... Read More
Cooking isn't much different than building a business. You have... Read More
Start your own business, and soon enough, you find yourself... Read More
It always amazes me when I see someone on television... Read More
The success and failure for the entrepreneur is largely dictated... Read More
Isn't enthusiasm a good thing? Aren't we urged to be... Read More
Venture capital firms are comprised of individual partners. These partners... Read More
"The expectations of life depend upon diligence; the mechanic that... Read More
As more and more people start or consider starting their... Read More
Franchises offer the first time business owner a proven and... Read More
Entrepreneurs are a special breed of high achievers. They create... Read More
Almost every day, I talk with people who want to... Read More
Entrepreneurship is a great magnet to deliver new ideas, unique... Read More
Hello Creative Entrepreneurs!In the second course on Creativity & Entrepreneurship... Read More
Discover the pitfalls of owning your own business BEFORE... [you... Read More
What would it be worth to you to receive a... Read More
The success and failure for the entrepreneur is largely dictated... Read More
If you have seen me speak you will know that... Read More
It's your first business or the next Great Idea in... Read More
Okay, I'll begin by telling you that I've been divorced... Read More
Mission Viejo, CA - June 14, 2005 - Bob Meyer,... Read More
Does anyone remember that book "Built to Last" done y... Read More
As a senior in high school, he paid cash for... Read More
There are a whole range of reasons why customers buy... Read More
Let me ask you a question? Imagine I would offer... Read More
When I'm not running my own business, writing articles about... Read More
Every business has to start somewhere. What truly makes this... Read More
Isn't it funny how people think that being self-employed is... Read More
Rohit Kochgaway was very upset with his boss for his... Read More
In "The Incredible Hulk", mild-mannered scientist Bruce Banner discovered that... Read More
If your company is like the one I work for,... Read More
The definition of a startup means you have very few... Read More
Many people believe owning a franchise will make them rich,... Read More
The most important function of a business plan is to... Read More
Most entrepreneurs constantly come up with new ideas. Whether they... Read More
Studying the history of franchise companies is interesting is watching... Read More
Lauren Rosenstadt was a single mom working at a herbcompany... Read More
DON'T talk to me about education for entrepreneurs. They're pouring... Read More
There are many coating businesses in the market today, but... Read More
It is widely held that one of the most important... Read More
Entrepreneurial e-gnorancePart 1: Questions for the entrepreneur to beIf you... Read More
How often do the words "I need" come out of... Read More
Have you ever imagined what it would be like to... Read More
Recently my bank opened a new branch that is a... Read More
Ray Bradbury's quote, "You've got to jump off cliffs all... Read More
Living in the twilight zone has its advantages. In the... Read More
Entrepreneur |