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November 24, 2003
The "Entrepreneurs are Gamblers" Myth
"I could never start my own business. I cannot tolerate that kind of risk. After all, entrepreneurs are nothing more than gamblers who are willing to bet it all on a hunch of a business idea." Many people view entrepreneurship this way. To them entrepreneurship is as nothing more than a crap shoot. However, when we study financially successful entrepreneurs a very different picture emerges.
This primary cause of this myth about entrepreneurs comes from a misunderstanding of risk. Risk is erroneously defined only in terms of the downside potential of the business. This can be thought of as "Sinking the Boat Risk". Ultimately, this could be the failure of the business. We read over and over that 80% of business start-ups fail. While this is may be true to a point, this risk can actually be drastically reduced with proper training and preparation as discussed in a previous posting on this site.
In our writing about the "Good Entrepreneur", Mike Naughton and I talk about the virtue of prudence as playing such an important role in managing this type of risk. If entrepreneurs view their role as one of being a steward of the resources at their disposal, they begin to take a much more careful and thoughtful approach to business formation. The true act of entrepreneurial courage from this perspective is not blindly forging into a new venture, but rather become one of a willingness to only move ahead when "Sinking the Boat" risk is minimized.
The view of entrepreneurs as gamblers obscures another key aspect of risk. "Missing the Boat" risk refers to what economists call the opportunity cost of not acting on a viable business idea. That is, there is a risk that is associated with not acting on an opportunity just as there is a risk associated with acting, but failing. In fact, failure to act on a business opportunity that has real potential for success can be seen as being equally imprudent and shows poor stewardship of the resources at your disposal (and ultimately the gifts you have been given). Succumbing to fear and not moving ahead can be viewed as the vice that corresponds to virtue of the courageous act of starting a new venture.
The successful entrepreneurs I have been associated with are rarely gamblers. In fact, they are careful, thoughtful business people who understand the risk of moving ahead, and approach that risk with a sober understanding of their responsibilities.
Posted November 24, 2003 02:05 PM
Comments
Jeff,
I think one of the main causes of this perception is that most people are very poor at estimating risk. I went skydiving a few months ago, and people talked about what a risk-taker I was. But in 18 years of operation no one has ever died at this place and no parachute has ever failed to open. Statisically, it is safer than driving. Entrepreneurs often have a more accurate view of risk, that is not domintated by emotions like fear or greed. I've seen behavioral economics research about how people are more concerned to not lose what they have than they are about gaining anything more.
Posted by: Rob at November 26, 2003 06:38 PM
You Previous post link is not working.
I really want to start my own business, but I am not sure what I want it to be.
And finances become a problem, since my credit just took a big plunge missing 2 and a half months of work. The real reason I even thought about doing something on my own.
I am thinking a little Bar/Restaurant kind of place. But I would have to research it a lot more. I am not worried about the long hours, if I get to see my time as being productive.
Posted by: James Stephenson at December 1, 2003 05:45 PM
When starting a business, especially with weak credit and few resources, it is critical to remember these tips:
1. Be realistic. A bar or a restaurant will take significant capital, which it sounds like you may not have access to right now.
2. Build off your past experience. The best ideas are usually right at your fingertips. Think about opportunities that are not being exploited that relate to your precious jobs or your interests/hobbies.
3. Make sure to follow "ready, aim, fire" and not "ready, fire, aim". Make sure any idea is really a viable business opportunity and not just a pipe dream before you go too far into the project. Better to fail "on paper" than in a to start a at was doomed to fail from the beginning.
4. Bootstrap, bootstrap, bootstrap.
Posted by: Jeff Cornwall at December 1, 2003 07:05 PM
Dear Sir,
As you can see from the many url's, my husband loves being an entrepreneur. I have been married to my husband for 8 and 1/2 years. We got married in 1995, since that time he has worked at least 6 or 7 jobs that each last for about 6-9 months. Then I realized that he just wanted to make money for himself and not for others. I don't feel this is a bad thing, however, it is rather nerve racking for me because we often don't have to resources to start all these new ventures. Currently, we are running 4 businesses . When I don't succumb to his wanting to start another venture, he becomes highly manipulative and sometimes angry and resorts to telling me that I am basically a dumb-dumb and that I just don't understand. However, when things go wrong, which they usually do because he hasn't put enough forethought into it (which has always been my only requirement), he comes to me to help him dig out of the situation. Usually I am the only one left digging and he has gone onto something else. He used to go to his parents, but their retirement funds are now exhausted. We are in debt personally and professionally (our businesses). I need some information that will help me talk to him. He is very intelligent and very persuasive. He can sell anybody just about anything. Therefore, I need plenty of back up information to help me stand my ground with him. I am not exactly sure what I am dealing with pscyhologically. Can you help?
Posted by: Denise at December 31, 2003 01:17 PM
When family members are in business together or are involved in a business together, it is critical to keep in mind that there are family issues, business issues and family business issues. Any issue that comes up should be first understood in terms of which of these realms it fits into. Too often they all get muddled together, and key issues from each realm that needs addressing may get lost in the mix. Segment issues clearly, putting each into the proper realm (family, business or family business). Then deal with them using the best resources available based on what the issue is really all about. Try to keep as few issues within the family business realm as possible, as that is the most complex. Don't let objective business decisions hide within the family business realm. Don't let family issues get mixed into your business whenever possible. It sometimes requires an objective outside person to help sort these things out.
Posted by: Jeff Cornwall at January 6, 2004 12:58 PM
This original post brings up a concept that most people fail to realize: There is risk in nearly everything we do. As mentioned prior, flying on a plane is statistically more risk averse than driving an automobile. As this may be hard to believe, the numbers do not lie. By taking the time to research the subject at hand (i.e. a new business, new job, etc), one can calculate the risk and take the most lucrative/sensible path given the balance of risk and reward. Factors such as available funds, resources, and current committments must be weighed prior to beginning a new endeavor. Since everyone takes some sort of risk everyday whether they realize it or not, the more calculated risk one can take, the more likely they are to succeed.
Posted by: Mike W. at March 9, 2004 04:24 PM
Gamblers, no. Risk takers, yes, but only calculated risk. In my mind a good entrepreneur weighs all elements before entering into a venture and therefore, as stated in this article, has a good chance at success. They are not just gambling with not control over the outcome.
Posted by: John O'Bryan at March 19, 2004 02:28 PM
at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
