Is Risk-Taking Behavior Key to Entrepreneurial Spirit?

Woman working on laptop.

Back in 2004, when Mark Zuckerberg was still creating the beginnings of the now-behemoth Facebook, PayPal co-founder and Facebook investor Peter Thiel told Zuckerberg a piece of advice that will always stay with him:

“In a world that’s changing so quickly, the biggest risk you can take is not taking any risk.”

If you want to start your own business, you need to be comfortable with taking risks. While two-thirds of businesses with employees survive at least 2 years, according to the U.S. Small Business Administration, only half survive at least 5 years. The act of opening a business itself is a risk.

However, without taking a risk, there’s rarely a reward. Entrepreneur coach and growth marketing agency founder Sujan Patel reveals some key aspects to the entrepreneurial spirit that align with risk-taking behavior. According to Patel, entrepreneurs must:

  • Look at decisions from a reward-perspective, not from a risk-perspective
  • Think outside the box to create solutions
  • View challenges optimistically: as opportunities, not problems
  • Set goals and have a vision for what they want to accomplish

Importantly, Patel writes, entrepreneurs must be willing to take calculated risks for their business. Here’s why risk-taking is so important to succeed in business as an entrepreneur.

What Are the Characteristics of an Entrepreneur?

At a Wharton Entrepreneurship Conference, some of the world’s most notable business founders shared the characteristics they believe define entrepreneurs.

  1. Entrepreneurs are outsiders, according to founder Sam Hamadeh. Entrepreneurs don’t feel the need to conform to a corporate world or to resign themselves to “secure” jobs.
  2. Entrepreneurs solve problems, shared Farhad Mohit, founder of Shopzilla. They look at opportunities to eliminate pain points when they’re creating their business models.
  3. Entrepreneurs are optimistic, according to Vonage chief executive Jeff Citron. They see an abundance of ways to make a positive difference with a new product, service or idea. They go to market quickly and work out the kinks along the way.

Starting your own business, putting in the time and effort to create something new, and releasing your idea to consumers all require risk. Entrepreneurs encounter risk with every business decision, but they’re decisive so that they don’t miss out on opportunities that can propel their businesses forward.

Why Do Entrepreneurs Take Risks?

A review of literature since the year 2000 on the personality traits of entrepreneurs confirms the prominence of risk-taking. There’s rarely a guaranteed outcome in business. Entrepreneurs are comfortable with uncertainty. Risk aversion is a predictor of whether an individual will become an entrepreneur (low-risk aversion) or stay an employee (high-risk aversion.)

Entrepreneurs take risks because they’re necessary to start and grow a business. Some of the risks an entrepreneur might face include:

  • Leaving a full-time job and steady paycheck
  • Using personal savings with no guarantee of a return on investment
  • Misjudging interest in a product or service
  • Putting trust in coworkers
  • Giving away time, energy, sleep, the ability to enjoy personal interests, etc.

Many entrepreneurs dedicate the majority of their waking hours, at least in the initial phase, to their business. Entrepreneurs may make myriad personal sacrifices to get a business off the ground.

Once the business is running, an entrepreneur continues to make calculated risks to grow a business. Risks can be classified as:

  • Competitive risk: losing business to similar service or product providers
  • Credibility risk: getting consumers to trust and be interested in a product or service with no brand recognition
  • Financial risk: having the cash flow needed to stay in operations
  • Market risk: knowing whether or not a product or service is what the market demands
  • Technology risk: facing business operations interruptions due to technology failure, or choosing a technology that is not the best for the business

There are many ways to mitigate these risks and make them more likely to turn into rewards. Research, marketing, planning, testing and reporting are a few strategies entrepreneurs use when taking calculated risks.

Benefits of Taking Risks as an Entrepreneur

Ask most successful entrepreneurs, and they’ll tell you their business success was influenced by taking a risk at some point. Taking risks is the way to create opportunity and progress. When an entrepreneur takes certain risks the competition is not willing to take, they can become leaders in their field.

Risk-taking shows a team that the entrepreneur is a true business visionary and leader who believes in the potential reward on the other side. Risk-taking enables and encourages innovation, which can be an important product/service differentiator.

Failed risks aren’t always negative. Sometimes, they provide the most valuable business lessons an entrepreneur can learn. Failure helps shape future business strategies and can eventually lead to business growth.

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Are You Interested in Becoming an Entrepreneur?

If entrepreneurial spirit qualities like risk-taking resonate with you, perhaps it’s time to consider starting your own venture. Wharton’s Entrepreneurship Specialization gives entrepreneurs the knowledge they need to be successful when starting a business. The program includes courses on data analytics, finance, idea-generation, market research and business models. Request information on the Entrepreneurship Specialization.