When entrepreneurs say “Risk? What risk ?”

2 09 2009

Businessman walking a tightrope2 articles on how entrepreneurs take decisions made me re-visit how to deal with perceived risk.  The first one “The innovative brain” from the november 2008  issue of Nature and the second one, “into the unkown: How do we get there from here” based on “Marketing under uncertainty: The logic of an effectual approach” in the May 2009 issue of AMA’s Marketing news

In the Innovative Brain, we learn that entrepreneurs, it seems, have a highly adaptive risk-taking behaviour. When there is no emotions involved in the decision, the ability to take high-quality decisions is the same for managers and entrepreneurs alike. But when emotion is involved, when there is a perceived risk for the outcome,  research has found some interesting things.

Entrepreneurs have shown superior cognitive-flexibility performance. The ability to put the decision in different contexts. When combined with some functional impulsiveness, this generates the ability to seize the opportunity so typical of entrepreneurs.

This would explains why sometimes entrepreneurs are “tough acts to follow”…

Now the AMA articles raises a question that I love. “What happens if there is no past to consult ?” which is often the case for a start-up, specially an innovative one.

In the decision process, here again, managers and entrepreneurs differ.

The entrepreneur showed the following tendencies:

  • They started taking action based on what and who they know and the resources they had available
  • They evaluated opportunities based on whether the downside risk was acceptable rather than on the attractiveness of the predicted upside
  • They sought partnerships
  • They embraced surprises and leverage flexibility
  • They focused on activities where they had some means of controlling the outcome

The key for me in all of this is their evaluation based on the downside risk.It comes back to “what are you willing to lose ?” The focus on what they can control makes them move forward faster. The functional impulsiveness mixed with their capacity to leverage flexibility makes for that Ready-Fire-Aim approach, which put them in a quite different time-frame than partners and investors.

I think I would even go further, considering all of this, in the entrepreneur’s mind once the downside is accepted, the risk isn’t worth wasting energy on, it almost vanishes!

Coaches, consultants, bankers, angels and VCs, keep that in mind when you think the individual in front of you acts like a bronco. 😉

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2 responses

2 09 2009
Tanveer Naseer

Alain,

I think you bring up a very important point here when you wrote – “The focus on what they can control makes them move forward faster”. I think for a lot of companies – if not individuals – there’s a tendency to get distracted or concerned about issues that they have no control over. The ability of entrepreneurs to disregard these issues is for me a key reason why many of them succeed because they focus only on matters that they can manipulate toward having a successful outcome.

Thanks for shedding more light on the differences that exist between managers and entrepreneurs. This was a very informative read.

2 09 2009
realwat

Alain,

I certainly agree with the fact they take actions, embrace the suprises, and the rest of the points you mentioned apart from “the downside risk was acceptable”. My believe is that they are able to disregard “risk” not be cause it’s acceptable, but because the upside opportunity is greater!

Regards,
David

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