Entrepreneurs as Risk Loving or Risk Averse

Recently I was talking with an entrepreneurially twentysomething. He really wants to be an entrepreneur but a) doesn’t have enough money saved and b) doesn’t have a co-founder. At this point, it’s important to tease out if he wants to be an entrepreneur because startups are cool right now or if he really wants to be an entrepreneur because it’s who he is regardless of the timing.

Per the two things holding him back, he could easily be an entrepreneur by day and vallet by night to solve the money issue. As for the lack of a co-founder, it’s 100x easier to recruit a co-founder once the business is actually started and a prototype is in place (many people have a hard time visualizing things and are more easily convinced once they can see something). So, why isn’t he an entrepreneur now? I believe it has to do with being risk averse.

My favorite definition of risk comes from a recent Tim Ferriss post titled How to Say “No” When It Matters Most:

Risk – The likelihood of an irreversible negative outcome.

When people tell me I must love risk because I’m an entrepreneur I always respond that it feels less risky to me to be an entrepreneur. Why? I have a strong locus of control and want to own my destiny. As an entrepreneur, I’m ultimately responsible if we win or lose. That’s how I like it.

The next time someone says “that’s so risky”, ask them if there’s an irreversible component to the potential negative outcome. If the outcome is reversible, and has a reasonable chance of success, it’s likely less risky than perceived. If fact, most decisions and the resulting outcomes are reversible.

What else? What are some more thoughts on entrepreneurs and risk?

8 thoughts on “Entrepreneurs as Risk Loving or Risk Averse

  1. David,

    I’ve done a bit of research in this area (see Role of Mindfulness in Entrepreneurial Market Analysis). Risk is a probability of an unfavorable outcome. Probabilities may be fixed or dependent, but perception plays a role in what individuals feel are risky. An individual may perceive a course of action as less risky based on antecedents to their conclusion about riskiness. These can be prior experience, availability or resources, expectations, general belief in certain abilities, etc. This is one of the factors as to why most startup entrepreneurs come from middle-upper class families. Lack of financial burden, lack of hypersensitivity to shortages of money, etc. I would look to the individual experiences/characteristics of your early life that shaped your perception to your propensity achieve a locus of control.

  2. “That’s too risky” is something I’ve heard a lot from people as a reason not to be an entrepreneur. The implication is that working for someone else is less risky than working for yourself and I don’t believe that’s true. I like to think in terms of likely negative events and likely positive events.

    As an employee one is somewhat likely to experience a negative event where a job is lost, and the potential upside is usually just that one is still employed. There are bonuses and such but usually those are not large enough to change someone’s life.

    As an entrepreneur one is somewhat likely to experience a negative event where the business goes under but there is no limit to the potential upside. The likely upside is also probably much higher that the likely upside of being an employee. This doesn’t have to mean having a huge exit. In my experience even having limited success as an entrepreneur is much more profitable than having even a great job.

  3. The easiest part is getting started. So if you can’t do that I would encourage you to not be an entrepreneur and stick to the 9-5 lifestyle, paycheck, benefits, etc! Plus, it isn’t just about you but is your wife / husband like entrepreneurship? If not, this will make something tough close to impossible. Entrepreneurship is a fork is the road where you should not plan on looking back!

  4. Love this post David. But I think there are really “three types of people”.

    1) Risk Adverse (Corporate Executives, Lifelong Consultants, Government Employees, etc)
    2) Risk Seeking/Loving (Adventurers, Adrenaline Junkies, Crazy Founder Types)
    3) Risk Aware (Great Poker Players)

    Everyone has fear. It’s a natural, healthy thing. It keeps us safe from danger. One must be good at managing the fear by controlling the downside of taking risks. Understanding risk and managing downsides of any venture is the difference between the fool and the fox.

    The “Risk Aware” type is really my favorite kind of Entrepreneur. They maximize their upside and minimize their downside. They work hard and are other-centered. They think in terms of “we” and not “me”. They make sure that they are ALWAY creating value and not wasting resources. They are good at risking other people’s money. They don’t “upgrade their life” as they become more successful. They by nature would rather produce than consume. Above all they understand that money is infinite but time is finite.

    David, I would argue that you aren’t “Risk Loving”. You are “Risk Aware”.

  5. Thanks for this post, David! Have you seen Tim Ferriss’ conversation with Chase Jarvis? You can find it on Youtube. Tim talks about the same concept that you present here.

    Ryan Connelly – thanks for your comment. I’ve never seen the ideas presented the way you presented them. I especially liked the “we” not “me” quality and the “money is infinite but time is finite”.

    In my seven years of experience in corporate jobs, I have found that the ladder structure does not bolster the “we” mentality because the people at the top are afraid that your success means that you could encroach upon their space and take away from their success. I’ve found that people leave companies to “move up” the ladder. There is also a sense that the goal is increased money since when you are salaried you may not necessarily see monetary fruits of additional hours spent for the company. My sense in corporate was that time felt long and money felt short. “Money is infinite but time is finite” suggests tackling large projects and attempting to move the needle forward on real change.

    I’ll be coming back to this blog regularly! I’ve enjoyed the content and comments here. Thank you!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s