Risk is something that entrepreneurs face on an everyday basis – and a love of risk and adventure has become synonymous with running a business.
TechCrunch founder Michael Arrington wrote in 2010: “Every time we do something, or don’t do something there’s a risk/reward algorithm being calculated in our brain.
“Entrepreneurs, though, are all screwed up. They don’t need to be rewarded for risk, because they actually get utility out of risk itself. In other words, they like adventure.”
Arrington suggests that a love of risk and adventure is something that’s unique to entrepreneurs. But is that actually true?
Research suggests otherwise.
A study carried out by AXA Business Insurance and Psychological Consultancy found that small business owners were in fact far more likely to maintain wary, prudent and deliberate traits than the general population.
While stereotypes – perpetuated by the narrative that Arrington spins – tell us that entrepreneurs are maverick individuals with an inherent appetite for risk, the analysis found that more than half of the business owners surveyed were risk averse.
“We often think of entrepreneurs as being adventurous renegades, renouncing the more common commercial work environment in search of their own fortunes and in support of their passions,” Darrell Sansom, managing director at AXA Business Insurance, says. “It’s encouraging to see the level of vigilance they employ when compared with the broader population, as from our experience, those businesses featuring more diligent management teams have traditionally been more successful in the longer term.”
He adds: “Although demonstrating a contradiction to general perceptions around ‘what makes an entrepreneur’, we welcome the fact that business owners are more measured and calculated in their approach. Any business, regardless of sector or the level of experience running it, would be unsustainable without its leaders having clear goals and ambitions, and a practical roadmap, grounded in reality, to achieving these.”
Paul B Brown, author of Entreprenuership for the Rest of Us, takes it further by saying, “Entrepreneurs are some of the most risk-averse people around.”
He adds: “People who have created two or more successful ventures will tell you: You need to know how much you are willing to lose before you even start thinking about starting something new. And you need to do everything possible to make sure you don't exceed that figure.
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“Successful serial entrepreneurs adhere to the basic principles of risk management: If you're going to play in a game with uncertain outcomes: Don't pay/bet more than what you can expect as a return, and don't pay/bet more than you can afford to lose.”
However, Richard Branson – like numerous other entrepreneurs – has built the entire Virgin Group on taking risks. “Entrepreneurship in its very essence is all about taking risks. You can create your own luck by opening the door to change, progression and success. If every entrepreneur – including myself – feared failure, then few companies would ever have seen progress or success," he says. "No one ever reached the stars from the comfort of their couch!"