The true measure of risk in starting (and not starting) a business
This is a chapter from Rich Dad Engineer.
In the previous three chapters, I explored the elements behind making the best life decisions. I started by listening to my heart for its calling, even if it sounded wild and crazy. I moved my rational mind aside, which had been persuading me not to take risks. By taking small steps, like talking to close friends, my mind began to notice the signals and respond to them more positively. Each step felt like aimless wandering in the darkness at first. But eventually, I hit the trigger that completely changed the course of my life.
Looking back, I realize something surprising: the risk I feared most never actually existed. What I mistook for danger was mostly an outdated instinct—one that made sense for our ancestors, but not for modern careers. In fact, it is far riskier to assume job security and not learn new skills. This chapter shows you why.
Chapter overview
How people usually perceive risk
When I tell people that I quit my job and started my own business, the most common reaction is still the same.
“You’re brave.”
Sometimes it’s said with admiration, sometimes with disbelief, and sometimes with genuine concern. But almost always, what they really mean is: that sounds risky.
What feeling does the word risk give you?
To me, risk used to feel like something dark and heavy—something to avoid. Now it feels lighter, measurable, and, surprisingly, even a little curious. At some point in my career, my relationship with risk changed, and looking back, I realize that what changed wasn’t the world itself as much as the type of risk my mind was responding to. Let me explain.
We are prisoners of the old risk perception
There is an old risk, deeply wired into us, and there is a new risk, the one we actually face today, but often misread through the lens of that older wiring.
Since the hunter-gatherer era, humans have been wired to avoid risk. We were physically weaker than other animals, and survival depended on cooperation. If you were separated from the group, you didn’t just lose social status—you risked death. Exposure, starvation, predators, rival tribes. Being “out” wasn’t a temporary inconvenience; it was fatal. So we learned to conform. We formed communities. We created rules, customs, and norms that kept the group stable and strong. And breaking those norms wasn’t simply an act of individuality—it could be an act of self-destruction.
That wiring never disappeared. Even as societies grew, as cities formed, as nations emerged, the instinct remained: don’t stand out too much, don’t go against the group, don’t take unnecessary risk. In the ancient world, that instinct made sense because risk was infinite and severity was absolute. But the world changed faster than our psychology, and we still carry the emotional weight of dangers that no longer exist in the same way.
The modern risks are calculable
In modern society, going against convention rarely means death. If you leave a company, you don’t starve immediately. If you start a business and fail, you are not exiled. If your idea doesn’t work, society doesn’t collapse around you. And yet, emotionally, it still feels that way for many people. We still react as if being “kicked out” of the system is catastrophic. We still treat deviation as if it carries ancient consequences. This is the illusion: the old risk—the life-or-death kind—is mostly gone, but the fear remains.
And there is a fear of not conforming to the social norm. Think about these thoughts:
- "How would I look if I fail?"
- "Would I look like a greedy person if I became rich?"
There is a general fear of being ostracized for standing out. Social stigma survives even when danger doesn’t. And that stigma is one of the biggest reasons people hesitate to start something of their own.
When I started my own consulting business in 2017, people told me I was brave. I didn’t feel brave. I felt uncertain, of course, but I also felt something else—something closer to calm—because by then I had already been reprogramming my sense of risk without realizing it. That shift came from learning how to quantify risk. Once I stopped treating risk as a feeling and started treating it as a variable, everything changed. So, let's break it down next.
How to measure risks and manage them
The risk measurement exercise I'm going to show you came from my early career. After finishing my PhD, I worked in an industry where safety was not theoretical. It was oilfield services, heavy operations, and real consequences. In that world, risk wasn’t a vague emotion; it was a formula you learned to respect. Risk was defined as:
Risk = Probability x Severity
For example, A mosquito bite is likely (high probability) but usually harmless (low severity, *); a rare industrial accident may be unlikely (low probability) but devastating (high severity).
* Unless it carries malaria, of course.
You don’t eliminate risk. You measure it, and once you start seeing risk this way, fear becomes less dramatic and more practical. And risk stops being something you simply fear and becomes something you manage.
"Quantify the risk, then it suddenly becomes manageable."
Starting a business today is not a life-or-death gamble for most people. That doesn’t mean it’s easy, or that there is no pain involved. But the real risks are usually finite: financial strain, stress on family relationships, emotional pressure, and identity loss. These are serious, but they are not infinite. They can be prepared for, mitigated, and bounded. This is the key difference between old risk and new risk. The old risk was absolute. New risk is negotiable.
What failure actually costs (in dollars)
Let's explore some more on how to quantify risk. I'm going to show you how to convert the risk of starting a business into dollar amounts.
When people say they can’t start a business because it’s risky, what they often mean is that they don’t know how much they could lose, they haven’t talked it through with their partner, and they haven’t thought seriously about what a failure scenario would look like. That isn’t pure fear as much as it is a lack of framing.
In investing, you never put all your eggs in one basket. You decide in advance how much you’re willing to lose. You diversify. You set limits. You accept that some bets won’t work, and you size them accordingly. So why should starting a business be any different? So, let's learn from how sizing works in stock investment.
When you watch the stock markets rise and fall, when you decide position sizes, when you plan for worst-case scenarios, you start realizing that the goal isn’t to avoid exposure entirely. The goal is to understand what you can afford to lose and to design your behavior so that you survive the downside while leaving room for the upside.
Before I ever thought of this as “risk sizing,” I did it instinctively. I asked myself a simple question: What is the maximum amount of money I’m willing to lose to buy my freedom?
A risk exercise example
💡 If the numbers make your eyes glaze over, skip to the next section—the conclusion will still hold.
For example, investing in a blue-chip stock is relatively low-risk: the price fluctuates less, and the business is so established that people expect it to weather an economic downturn. For simplicity, let's say it may drop by up to 20%. (Experienced investors may use a concept like Value at Risk, drawn by statistical analysis of the historical price movement.) On the other hand, a startup company is much less stable, and possibly cease to exist in a few years. That’s effectively a total loss.
To diversify, we limit the size of each investment in a single idea. Conservatively, we risk 5% of our investment capital per idea. That’s $18,000, assuming total investable capital of $360,000.
If you could lose 20% in a blue chip stock, you could buy $90,000 worth of stock ($18,000 / 20%). For a startup, you assume a full loss and limit the investment to $18,000.
Investment loss of $18,000 could be:
- 20% stock decline: $18,000 / 20% = $90,000
- 100% loss for a startup: $18,000 / 100% = $18,000
...size the investment according to the risk.
Apply dollar risk to your business
Imagine doing the above exercise for your new business. If you are like me, starting from a consulting business, you need almost zero startup costs. Almost the entire $18,000 can be spent to cover your living expenses while you make the first sales. If your business requires hiring staff, purchasing equipment, or holding inventory, you need to add those costs to your living expenses.
Now it's walk backwards. Start by calculating your monthly living expenses. Then think about how long it will take you to get your first client and get paid. That's the minimum investment you risk for your business experiment. Finally, ask yourself if that's what you can afford to lose, or if you need more time saving up from your current job.
The decision-making steps:
- Calculate the monthly expense (X dollars).
- Decide how long your business needs before getting paid (Y months).
- X times Y is the minimum investment for your business experiment. (You may need to add extra-overhead and startup costs depending on your business.)
- Is it what you can afford to lose? (i.e., What percentage of your investment capital?)
The last point is a personal question. Depending on your age, family, lifestyle, and risk tolerance, you'd have a different answer.
If you are single and don’t have dependents, the downside is remarkably low. If you have a family, the responsibility is higher, but so is your ability—and your obligation—to plan.
Being realistic: A real risk is not starting
Most businesses fail. That’s true. But failure is not symmetrical. With the formula I presented, the downside is capped, while the upside can compound.
More importantly, the skill of building a business compounds even when the business doesn’t. Learning to price, to sell, to negotiate, to automate, to think in systems—these are not skills that expire easily. They are valuable even if you decide to go back to regular employment.
The nuanced learning that comes from real-world experience can’t be outsourced—not even to AI. They are not the kind of thing you can “catch up on later” with a weekend course. They are, in a strange way, closer to literacy than to specialization: once you truly acquire them, they become part of how you perceive the world. Remember, I asked you what the word "risk" makes you feel.
What does risk sound like now that you learned how to quantify?
Future-proofing yourself against AI
The change in perception of risk matters because we are entering a period in which the old career strategy—acquire skills, stay useful, climb the ladder—doesn’t protect you as it used to. For decades, that strategy worked because specialized knowledge had a long shelf life. That shelf life is shrinking rapidly now. Not for every role, and not overnight, but unmistakably.
AI is pushing companies toward fewer seats, leaner teams, and higher leverage per person. Future-proofing yourself by skills alone is becoming a losing game in many functions, not because skills are useless, but because the rate at which you must refresh them—and the speed at which the labor market can devalue them—is accelerating.
This is why I believe owning a piece of a cash-generating system—whether it is a business, a product, or equity—is no longer optional. It is defensive. It is how you build stability in a world where employment is increasingly treated as a variable cost. The real risk today is not starting something and failing.
The real risk is spending decades optimizing for employment only to discover, too late, that no one is hiring.
⚡️ Here's your action plan that has zero risk of doing it:
- Calculate your monthly cost of living.
- Know your risk tolerance in dollars based on your savings.
- How many months of runway would you have if you started a business today?
Having those numbers makes the risk calculable and manageable. And it helps you to discuss your idea with your significant others.
This chapter is not a call to recklessness. It’s a call to clarity. The old risk that once justified fear is mostly gone. What remains is a ghost—powerful, persuasive, and outdated. The new risk is measurable and manageable, and in many cases, it is necessary. You cannot future-proof your life by avoiding risk forever, but if you own what you build—if you design systems that generate value beyond your time—you gain something rare in modern work: optionality.
And no one can fire you from what you own.
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