Mythbuster #2 - Entrepreneurs are risk takers
Myth: Entrepreneurs are risk takers.
The Truth: The derivation of the word “entrepreneur” includes the concept of ‘risk-taking.’ And many people assume that entrepreneurs (small business owners) are risk-takers. Like the late Evil Knievel who cheated death many times before his recent (November 2007) death at age 69.
But look carefully at this assumption. What kind of risks does a new business owner take that the “average” person working for a company not take? Well, you could lose your company if you don’t do a good job of managing cash flow and getting in customers/clients. So, if you worked for a big company, you could get laid off just before you retire. Which is more risky?
In the case of the small business person, he/she may be risking retirement funds on a business venture. But if that same person sits around and “rusts out” he’s taking a risk of dying before he really does anything interesting or rewarding. Or she may get a terrible disease and have to spend all that money on health care. Life is risk.
As John F. Kennedy said, “There are risks and costs to a program of action, but they are far less than the long-range risks and costs of comfortable inaction.” It is a bigger risk to do nothing than to become an entrepreneur. I would like to believe that entrepreneurs take calculated risks. By that, I mean they weigh all the possibilities, write up a great business plan which includes all of the financial projections, start carefully and frugally so as not to run out of capital…and then only take the plunge when they see that they have a reasonable chance to succeed. The SBA includes “calculated risk taker” among the attributes of successful entrepreneurs.
Lighting Strikes Everyday says that it is “hype” to believe that risk-taking ability is a virtue of an entrepreneur. That’s certainly true. People envision great entrepreneurial types like Bill Gates, who just “retired” from Microsoft. But Gates when he started was young and free. He had less to lose than someone nearing retirement. How about someone like Colonel Sanders, who didn’t really get started until he was over 40.
So here’s my question - If you are sitting around thinking about starting a business, why not take the calculated risk and do it?
Tags: business_person, business_venture, cash_flow, entrepreneur, evil_knievel, financial_projections, lighting_strikes, new_business, retirement_funds, risk_takers, sba, small_business_ownersRelated Stories
POSTED IN: New Ideas, Small Business Myths - Busted!, Starting Up
2 opinions for Mythbuster #2 - Entrepreneurs are risk takers
Bridget
Jan 14, 2008 at 9:17 pm
Hey Jean! I DO think being an entrepreneur is risky because of the unknown variables:
1. Where will they get funding from?
2. Effective marketing (corporate dollars vs. individual dollars)
3. Doing everything yourself. Everything.
4. Managing multiple systems; sales, marketing, administration, insurance, human resources, etc.
When a person starts a business, all of these variables are a complete puzzle. They don’t know how any of it will pan out. A risk? Absolutley!
Denny K Miu
Jan 20, 2008 at 10:18 am
This is an interesting artilce and talks about one of my favorite topics which is the relationship between entrepreneurs and risk management.
Similar to the author, my observation is also that entrepreneurs are NOT risk takers. They are very much risk-averse. This is indeed a strange comment but as an entrepreneur, I differentiate between taking risk and mitigating ambiguity (or risk versus calculated risk).
I don’t gamble and I don’t play the lottery. I think doing so would be taking undue risk because I have absolutely no control of the outcome.
On the other hand, doing startup is not risk to me because I believe I can control the outcome. It is just that the outcome is somewhat ambiguous which I know how to mitigate.
I suppose if I take a step back, this is not unlike the difference between an amateur gambler and a professional gambler. If I know how to count cards, I won’t think that I am taking risk neither.
I have summarized my past experience as an entrepreneur in my book (in progress), http://www.startupforless.com, hoping to share successes and failures and encourage others to do the same.
Thanks for the article.
–Denny–
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