McKinsey, the World’s Epicenter of Risk Aversion, Still Produces Entrepreneurs

Hence, entrepreneurship must not require as much risk-taking as people think. This is James Kwak's short, persuasive argument, with more substance of course. He's a former McKinsey consultant who co-founded a company, and he does a nice job poking holes in Malcolm Gladwell's latest piece (abstract only) about entrepreneurship and risk-taking while not disagreeing with its essence.

The talk about risk-taking and entrepreneurship is an issue of perception: people think to start a good business requires betting the farm, or that the personalities attracted to the game are sky-diving flame throwers. Not so.

But false perceptions aside, how the heck do we encourage more of the risk-taking that's good and calculated and leads to real innovation? Here Kwak says:

The best encouragements to productive risk-taking are measures that limit the cost of failure for people who are actually creating something new, and this is one reason why Silicon Valley has been so successful. The financial risks of starting a company aren’t that big, for most people. High-tech companies are typically started by people who could pull in low-six-figure salaries working for other companies, so they’re giving up a couple of hundred thousand dollars in opportunity cost; the rest is typically angel investor or venture capital money. More importantly, there is (historically, at least), little stigma attached to failure, so there’s little reputational downside to a failed startup. In a world full of risk-averse people, that’s very important.

I bolded the sentence that is most critical. It is America's secret cultural sauce.

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