Entrepreneurship- Risk Taking
“In a world that’s changing so quickly, the biggest risk you can take is not taking any risk.”
If you want to start your own business, you need to be comfortable with taking risks. While
two-thirds of businesses with employees survive at least 2 years, according to the U.S. Small
Business Administration, only half survive at least 5 years. The act of opening a business
itself is a risk.
However, without taking a risk, there’s rarely a reward. Entrepreneur coach and growth
marketing agency founder Sujan Patel reveals some key aspects to the entrepreneurial spirit
that align with risk-taking behavior. According to Patel, entrepreneurs must:
Look at decisions from a reward-perspective, not from a risk-perspective
Think outside the box to create solutions
View challenges optimistically: as opportunities, not problems
Set goals and have a vision for what they want to accomplish
Importantly, Patel writes, entrepreneurs must be willing to take calculated risks for their
business. Here’s why risk-taking is so important to succeed in business as an entrepreneur.
What Are the Characteristics of an Entrepreneur?
At a Wharton Entrepreneurship Conference, some of the world’s most notable business
founders shared the characteristics they believe define entrepreneurs.
1. Entrepreneurs are outsiders, according to Vault.com founder Sam Hamadeh.
Entrepreneurs don’t feel the need to conform to a corporate world or to resign
themselves to “secure” jobs.
2. Entrepreneurs solve problems, shared Farhad Mohit, founder of Shopzilla. They
look at opportunities to eliminate pain points when they’re creating their business
models.
3. Entrepreneurs are optimistic, according to Vonage chief executive Jeff Citron.
They see an abundance of ways to make a positive difference with a new product,
service or idea. They go to market quickly and work out the kinks along the way.
Starting your own business, putting in the time and effort to create something new, and
releasing your idea to consumers all require risk. Entrepreneurs encounter risk with every
business decision, but they’re decisive so that they don’t miss out on opportunities that can
propel their businesses forward.
Why Do Entrepreneurs Take Risks?
A review of literature since the year 2000 on the personality traits of entrepreneurs confirms
the prominence of risk-taking. There’s rarely a guaranteed outcome in business.
Entrepreneurs are comfortable with uncertainty. Risk aversion is a predictor of whether an
individual will become an entrepreneur (low-risk aversion) or stay an employee (high-risk
aversion.)
Entrepreneurs take risks because they’re necessary to start and grow a business. Some of the
risks an entrepreneur might face include:
Leaving a full-time job and steady paycheck
Using personal savings with no guarantee of a return on investment
Misjudging interest in a product or service
Putting trust in coworkers
Giving away time, energy, sleep, the ability to enjoy personal interests, etc.
Many entrepreneurs dedicate the majority of their waking hours, at least in the initial phase,
to their business. Entrepreneurs may make myriad personal sacrifices to get a business off the
ground.
Once the business is running, an entrepreneur continues to make calculated risks to grow a
business. Risks can be classified as:
Competitive risk: losing business to similar service or product providers
Credibility risk: getting consumers to trust and be interested in a product or service
with no brand recognition
Financial risk: having the cash flow needed to stay in operations
Market risk: knowing whether or not a product or service is what the market
demands
Technology risk: facing business operations interruptions due to technology failure,
or choosing a technology that is not the best for the business
There are many ways to mitigate these risks and make them more likely to turn into rewards.
Research, marketing, planning, testing and reporting are a few strategies entrepreneurs use
when taking calculated risks.
Benefits of Taking Risks as an Entrepreneur
Ask most successful entrepreneurs, and they’ll tell you their business success was influenced
by taking a risk at some point. Taking risks is the way to create opportunity and progress.
When an entrepreneur takes certain risks the competition is not willing to take, they can
become leaders in their field.
Risk-taking shows a team that the entrepreneur is a true business visionary and leader who
believes in the potential reward on the other side. Risk-taking enables and encourages
innovation, which can be an important product/service differentiator.
Failed risks aren’t always negative. Sometimes, they provide the most valuable business
lessons an entrepreneur can learn. Failure helps shape future business strategies and can
eventually lead to business growth.
