The Heroes of Our Times, and the Magnificent Risks They Take!
So, what makes entrepreneurs such risk takers? Well, here’s a surprising finding.
Popular culture portrays entrepreneurs as risk takers.
Stories of legendary entrepreneurs such as Steve Jobs, Richard Branson, or Elon Musk highlight their unconventional (even crazy) gambles. And all with good reason. For they are the heroes of our generation.
They are the ones who “put a dent in the universe”, and did so with panache and courage. They overcame evil (as in conventional thinking), won over the kingdom (made their fortunes), won the love and respect of an entire generation, and all while being incredibly cool in the process. Truly the stuff legends are made of.
As iconic entrepreneurs, they took risks that perhaps many of us watching from the sidelines, have only marveled at. And try as we might, we may struggle to summon within ourselves their courage to take on the world.
So, what makes entrepreneurs such risk takers?
Well, here’s a surprising finding.
It turns out that some well-regarded studies do not actually find entrepreneurs to be greater risk takers than their managerial peers. (The technical definition of risk taking propensity is the probability of rewards that would need to be offered to offset the probability of failure.)
One particularly influential study forced newly turned entrepreneurs and their managerial peers to choose between the safe alternative and attractive yet risky propositions in a variety of situations. In each situation the probabilities of outcomes were given .
The researchers found no difference in their responses.
Surprising? Absolutely. What then might account then for their ability to take on risks that others may balk at?
Well the most plausible explanation is that entrepreneurs simply weigh the odds differently.
There are several research findings that suggest this.
The first comes from research in optimism, or a generalized belief that outcomes will be positive in most circumstances. Several studies have found that entrepreneurs tend to be more optimistic than non entrepreneurs. They tend to believe that on the whole things will turn out well, even when others may be more circumspect. And this optimism plays a key role in allowing them to overcome doubts and uncertainties and start a business.
Of course, there are risks associated with this. One potential risk of optimism is not foreseeing preventable adverse events. And there is indeed research that suggests that those with exceptionally high optimism miss out on reading cues of danger , and might not do enough to offset these. Nonetheless, optimism leads to entrepreneurs evaluating risks differently from their managerial peers and therefore weighing the risks differently.
A second stream of research is around confidence in one’s own abilities. Technically called self-efficacy, or the belief in one’s abilities to perform specific tasks, several studies have found a high correlation between the decision to be an entrepreneur and the entrepreneurs perceived self-efficacy. Quite understandably, a higher self-efficacy or belief in one’s own abilities would lead them to weigh the odds differently from others who had more modest beliefs in their own abilities (actual abilities notwithstanding).
Two other characteristics seem to differentiate entrepreneurs from managers.
The first is comfort with ambiguity. Individuals vary a great deal on how comfortable they are with ambiguity. Many prefer lives where the future can be predicted so that their lives can be structured.
On the other hand, entrepreneurs tend to have a high comfort with ambiguity, either because they see this as part of the fun of the journey, or perhaps because they believe they will be able to shape uncertainty in their favor.
The second is perseverance, or the ability to keep going in the face of adverse circumstances. This is an ability that has enormous significance for the entrepreneurial journey.
It influences how much effort entrepreneurs will continue to put in, when their new venture experiences setbacks. It also speaks to the sheer staying power of staying on course, and continuously searching for ways to make something work. In fact each of our heroes, is legendary for their perseverance. Not surprisingly, studies have shown that perseverance is in fact linked with higher financial returns for the entrepreneur .
So then perhaps an entrepreneur is not really someone who is a high risk taker.
Instead, perhaps he is someone who while being supremely talented, also had just the right mix of optimism, supreme confidence and extreme perseverance to slay the dragon and claim the kingdom.
And then maybe, just as we admire them from a distance, we can begin to understand how to be more like them.
After all isn’t that why each generation has it’s heroes—to inspire and to imitate?
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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