Risk and Entrepreneurship

I think a misconception about business entrepreneurship is that it entails a tremendous amount of risk at the outset.

Particularly when I talk to folks from non-entrepreneurial cultures overseas, their stereotype of entrepreneurs is crazy people who bet the farm and max out their credit cards.

While I don’t dispute that many entrepreneurs are crazy, I do dispute that they bet the farm in a wink. In fact, I think the best entrepreneurs are really good at mitigating risk. They are really good at compacting the risk into baby steps such that they can gauge the consequences of each action and decide whether to continue forward.

Yes, a higher-than-average risk tolerance is probably common among entrepreneurs, but it’s not as high as many people seem to think. The media glorifies those who wipe out their personal savings, quit their job, and stake their career on their new business and yet, I personally don’t know many successful entrepreneurs like this. Do you?

3 Responses to Risk and Entrepreneurship

  1. Ben,

    I couldn’t agree more.

    What perpetuates that misconception is the fact that non-entrepreneurs don’t understand that we know “risk” not as a stand-alone term, but as one-half of the risk-reward decision-making process.

    I began my career in the derivatives markets (options and futures) when they were in their relative infancy. The perception of those on the “outside” was that these market were nothing more than a glorified casino, where making a living depended upon luck alone.

    We knew better. We developed options valuation algorithms and quantitative risk management tools to assess our risk/reward ratios on a real-time basis.

    This allowed us not only to know what our risk was at all times, but to control it and hedge it instantly.

    I wouldn’t call that crazy.

  2. Krishna says:

    The best of entrepreneurs demonstrate an impeccable sense of `timing’ their risks than `assuming’ them. If you wait till you get the complete facts as are requried to make a decision, someone else would’ve eaten your lunch. And if you show haste, you’ll be done in by competition. It’s all about practised gut feel and succumbing to the intuitive epiphany.

    What if Bill Gates accepted IBM deal to buyout his OS. He declined the deal then(timing) but chose to license it out…now that’s how Microsofts gets made – by timing the risk.

    It could be a disaster if you bet the farm early on; but it’ll be a catastrophe if you don’t when you have to.

  3. TK says:

    Well I am going to put out a slightly different view. Ben, I think your view may be a little off because of where you have spent most of your life, Silicon Valley. In my opinion, the Valley is one of the most entrepreneurial thinking places in the World. Everyone thinks entrepreneurially.

    So when you see people who calculate risks and do what they must to mitigate them, this is still way off the scale on the risk capacity of the average American.

    The average American wants a straightforward job, with 3 weeks vacation, and as little risk in their life as they can find. They don’t mitigate risk, they abhor it.

    So while you are right that entrepreneurs try and mitigate risk, compared to the species of American that they are but a subspecies, they are HUGE risk takers.

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