The way Entrepreneurs Think and Act is a lot more complex than Risk Taking.

Walking the tightrope in the Circus can be very dangerous. Yet why does the Performer do it? As Prof.Manimala of IIM-Bangalore points out in the Businessgyan Panel Discussion, the daring acts of the Circus Performer seems daring to the audience, however the performer himself has taken sufficient safeguards and training to ensure that he does not meet with a fatal fall. The Performer has enough knowledge, training, and safeguards to give him confidence that he is not at risk.

An Entrepreneur to many looks like this Circus Performance, looks daring and macho. This is because for the observer, the Entrepreneur is doing something that he himself possibly will not do. This is the reason why entrepreneurship seems so daring. However look from the entrepreneur's lens: Is he in business because he feels there is a big chance of failure? From his viewpoint is what he is doing risky? If it was will he do it in the first place? Entrepreneurs know how to mitigate and manage risk, they are not risk takers. And even if they lose money or time it is what they were prepared to lose. Sure Entrepreneurs might underestimate the effort required or overestimate the probability of success, but that is another point altogether, a similar expectation mismatch can happen in any new product launch even in a large company.

Prof. Saras Sarasvathy of Darden School adds that  "While most people would agree that managers are largely risk averse, they would assume that entrepreneurs are risk-takers.  Research has shown, however, that for the most part both are risk averse." Entrepreneurship therefore is not
about dare.

If Entrepreneurship is not risky then there is really no excuse for someone not to be an entrepreneur. However it is important to observe how entrepreneurs do things differently. Instead of setting a goal, and managing resources to meet the goal effectively, entrepreneurs start with the resources that they have in their control and leverage it to create a new reality. Prof. Saras Sarasvathy has a word for this - ‘Effectual Reasoning', "to the extent that we can control the future, we do not need to predict it." She adds that "Consciously, or unconsciously, they act as if they believe that the future is not "out there" to be discovered, but that it gets created through the very strategies of the players." This is very different from the Causal Logic taught at management schools and practiced by managers.

Risk, essentially are events which are not planned; seasoned entrepreneurs, however, know that surprises are not deviations from the path. Instead they are the norm, the flora and fauna of the landscape, from which one learns to forge a path through the jungle. Prof Saras in a research paper observes, "In fact, several of the expert entrepreneurs I studied explicitly stated that being in a market that could be predicted was not such a good idea, since there would always be someone smarter and with deeper pockets who would predict it better than they could." Seen from this light the perception of risk totally changes. Afterall as someone said "Change is the only Constant."

Regarding failures Prof.Saras Sarasvathy says that "Curiously enough, this focus of entrepreneurial thinking on using any and all available means, even the products of apparent "failure" makes the entrepreneur less resource-dependent than the manager." Scarcity of resources may even be seen as an impetus for invention rather than as a constraint.  Pierre Omidyar, founder of eBay often mentions that the reason he built such a robust self-sustaining platform on which millions of people could trade at the same time was because he did not have venture capital funding.

Yet we do see big failures around us, and this reminds me of what Waren Buffet had to say about risk taking, of course from an investment context, "To make the money they did not have and did not need they risked money that they did have and did need, that is plain foolish." An expert Entrepreneur does not make this mistake. Effectual reasoning may not necessarily increase the probability of success of startups, but it reduces the costs of failure by enabling the failure to occur earlier and at lower levels of investment.

Does that mean Entrepreneurs do not go through hardtimes? The struggles and the pain? The certainly do, Entrepreneurs are committed to their objectives, have a must do attitude and are willing to go the extra mile, however are these not qualities that you would expect from any other successful professional in any area be it sports, arts, research and management?

Resources :- http://www.effectuation.org/ftp/effectua.pdf 

The author is the Chief Catalyst of businessgyan. His area of interest include business strategy and innovation. For feedback and more information, e-mail: www.businessgyan.com/balaji.

Issue BG82 Jan 08

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