Thursday, November 01, 2007

Entrepreneur Vs Risk Taker

I have really heard all the quotes that is there is to know about entrepreneurs being risk takers. The party line in business school community constantly subscribes to the hype that ability to take risks is the chief virtue of an entrepreneur. Risk and entrepreneurship are clouted as inseparable. I was never taken in by that theory. I felt 'risk taking' ability is at best a low bar for being an entrepreneur and at worst a negative attribute for being one. By virtue of working in a place which is filled people who started their own company, I happened to discuss this theory with a person who has some experience in it. And these are the best and most impressive words I've heard on this subject. I paraphrase;

"An good and successful entrepreneur is not a risk taker. He cannot think of himself in those terms. How would he convince other people if he himself thought that the whole venture was a risk? How would he get funding? How would he get people to do work for him if he constantly thought he was taking a risk. To him, his idea is everything. His plan is all carefully worked out. People outside, who don't know the plan, use frivolous words like 'risk taker'. To him its a done deal. He is sure his plan will get him there. Its not a question of 'if' but 'when'."

That to me rings true. If 'risk taking' was a factor in some body's business plans then taking a 12 std public exam will also qualify as a entrepreneurial venture. Because 12 years of a person's life is wasted if he fails and everything is doomed for him. Isn't having 'everything to lose' the substance of the risk attributed to entrepreneurs? By that definition of risk everybody is taking a risk, aren't they? The lowest bar is risk. Let me take another trivial example; a few people ask me "how did you quit work, join business school, take a 140K loan within months after your marriage? You are a big risk taker?" Hell No. I am the most paranoid guy, I have ever seen. 95% of BSchool students end up in jobs. A huge majority of them in really decent jobs. So if someone joining Bschool thought s/he was taking a risk, I am not sure how they navigated through all those interviews and networking-related scrutiny with that kind of self-doubt. Some of the most risk-averse people, I have met went to Bschool with me.

If risk taking was a standard then pretty much a gzillion people would become awesome entrepreneurs. Because the risk involved in going to bschool is pretty much the same as starting a company or writing a 12 std exam. All have 'everything' to lose. 'Risk' is not a distinguishing dimension. It has infact clouded the analysis and due diligence aspect of starting your own venture. The significant dimension is the content and preparation for the venture. This is obvious when you say the venture is a 12 std exam. But not so when venture = start-up. Its the people who don't know the requisite information that label the unknown as 'risk'.

It is in the content. It is in the idea and its execution plan. That's what a good entrepreneur should worried about. The rest are incidental details and useless hype.

p.s: Risk has many contexts. Don't confuse market risk beta with 'risk' bhaskar.

12 comments:

I said...

A good entrepreneur should also not start new ventures on ashtami (like it is today) or make important decisions during raagukalam.

Subhash said...

This, I guess, is your worst post.

Ram said...

Hawk,

There is always a risk in life, with anything we do ranging from riding a cycle in West Mambalam to repairing the Space Station. So in that sense, everyone is a risk taker and there is nothing novel about being one. A successful entreprenuer should be a very good risk manager since there are well known short-term risks that an entrepreneur embarks on compared to those working for an established company sitting on their bottoms from 9-5.

I am no expert, but if I were funding a project, I would look for any business plans to have risks associated with starting a business and the entrepreneurs plans to manage those risks better than peers in that business.

Deepak Chembath said...

Looks like somebody pissed u off

anush said...

Man, I was just waiting for somebody to write this post! I agree 200% with your post. "Risk Taking" is a term invented by the society to explain other people's success, in the hope that anybody can replicate the success if they have certain ingredients. Unfortunately, that is not how it works. This term probably more applies to investors who need to evaluate how much returns they may get in different investments. I don't think anybody takes risks. People do what they are comfortable doing & nobody starts out the day saying 'let me take some risk today and see how it turns out'. If you look at Steve Jobs' life, it would seem as if he took major risks - something he contradicts in his stanford commencement speech. Overall, I think 'risk taking' is blown out of proportions. You can't argue saying 'I took the risk of hiking the half dome, but in the end I got a good view' ;) to somebody that has fear of mountains, it would seem like you took a risk, and that is what he would need to do to get the same view.

shantha said...

Nice Post!

I am an enterpreneur and I love it! I have also been an inspiration for a number of guys who wanted to start off on their own.

Of course, there is a factor of risk. It is like driving on a mountain highway. Of course, you are prepared for all those curves and bends in the road. But you do not know what surprises might come up when you make a turn. You sound your horn to warn the other guy. But some times, you could get the surprise of your life. What holds ground is your nerves. If you lose your nerves you will find yourself in a crash.

This is very similar to what happens in your venture for that matter in every one of our lives too. We are successful only as long as we do not lose our nerves. It is not the risk that overwhelms us. It is our own fear for the worst.

Raji said...

I am aspiring to be an entrpreneur and I totally agree that it involves risk taking. Even though investing huge amount and going to a B-school is a risk, it's 90% sure that you'll get your ROI by getting a nice job but being an Entrepreneur won't guarantee you that...It's one's own risk and interest...Nice post!!! I was looking for one like this.

Anonymous said...

> The party line in business school community constantly subscribes to the hype that ability to take risks is the chief virtue of an entrepreneur.

>> If this is really true, then it's really a sad state of affairs. I always thought of entrepreneurship as the ability to spot an opportunity or see "a" future and working towards shaping it and the motivation and perseverance to see it through. If this is what BSchool tried to get thru to you (irrespective of the fact that you don't subscribe to that theory), reading your post, I suddenly have a dim view of BSchools specifically UMich.

> Because 12 years of a person's life is wasted if he fails ...
>>> What??? May be 1 year (the 12th year...) is wasted...
The comparison with 12std exams completely escapes me. May be this post didn't have the kind of analytical forethought as some others in your blog or may be I'm just too dumb.

I agree with the substance of the post and where you're heading with it. I am just commenting about the presentation...

TerryWhatLee

Hawkeye said...

I,

I assuming the laws surrounding registering and starting a company would tak care of vital detail such as that.

subash,

oh! no!

Ram,

every company in its 10K form would list down the risks it faces. It would list every possible factor that can be thought of such as competitive risks, environmental risks, etc etc. Thats a standard disclaimer saying "we could get screwed anytime". the thing is - such a company will not be hoping to overcome those risks to be successful. They'll be doing something else to be successful and the risks will get addressed indirectly.

If you put those risks in perspective, those are standard risks that any existing entity would face. A regular 9-5 guy can list 10 risks which could result in him getting totally screwed. As you said anything has associated risks. Listing it is like accounting. That you had $1000 COGS does not mean you planned for it. You were going for a certain revenue and the COGS were an indirect result of it. It is incidental accounting and so is risk.

An entrepreneur does not manage risk explicitly, as in, identifying all the crazy risks and working on them. He executes his plan well and works on his ideas and his risks get managed automatically.

deepak,

no. nobody did.


anush,

/* Risk Taking" is a term invented by the society to explain other people's success*/

you are right. 'risk' explains the unknown.

/* If you look at Steve Jobs' life, it would seem as if he took major risks */

ipod seems so carefully researched that I think steve jobs would beat up anybody who calls its a risk.

shantha,

/* It is not the risk that overwhelms us. It is our own fear for the worst. */

awesome. couldn't have said it any better. this was the reason for the post. the hype surrounding risk is so much that a person sometimes does not believe that due diligence elminates some/lot of the risk.

saying risk taking ability is the key to entrepreneurship is as vapid as saying that accounting is the key to business success. you just hit the nail on the head.

raji,

/* it's 90% sure that you'll get your ROI by getting a nice job but being an Entrepreneur won't guarantee you that */

dont you think it depends on what the statistic is for entrepreneurs and the definition of failure for an entrepreneur?

TWL,

i agree this was a hastily puttogether post. I also agree with your comments about the presentation. But reading it again, I still stand by it because it has been gestating in my mind for a while.

/* The comparison with 12std exams completely escapes me. May be this post didn't have the kind of analytical forethought as some others in your blog */

i think i did not explain my self in detail. if you totally and irrevocably fail in 12th std then those 12 years of investment in education is not taking you anywhere. when you cant continue your education beyond 11th. the incremental benefit of a 11th std pass over a literate-but-no-school education is negligible.

Ashwin said...

Agree with 'ram'. When I managed to walk home from office in the rain during a thunderstorm, I guess I took a huge risk of getting struck dead by lightning, didn't I? That doesn't make me an entrepreneur!

IMO, risk-taking is not proceeding with an idea where you know what can go wrong. Its about whether you know for sure that if something does goes wrong, your plan B will work... if you have a plan B, that is!

Anonymous said...

HI,

You took a 140K loan for a B-school ? Is B-school that expensive ? I mean a Masters (in Engg) comes out to tops $30 K but this sure takes the cake !

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