The Risks That Entrepreneurs Take

I work with many entrepreneurs and other business people on fine tuning business concepts.  As part of that process, I’m frequently asked to advise on those steps that must be attended to and what things to avoid.  So, I try to be alert to particularly useful or insightful resources to pass along to people I work with who are sorting through knotty business challenges. 

With this in mind, an article from the January 18, 2010 issue of The New Yorker caught my attention.  Written by Malcolm Gladwell, the article entitled “The Sure Thing:  How Entrepreneurs Really Succeed,” examines various characteristics that distinguish successful entrepreneurs and raises a number of thought-provoking  observations.  Among these is the idea that contrary to the popular notion of the brash risk-taking entrepreneur, most successful entrepreneurs actually do as much as possible to minimize risk in pursuit of their business objectives.   Gladwell notes:

The economist Scott Shane, in his book “The Illusions of Entrepreneurship,” makes a similar argument.  Yes, he says, many entrepreneurs take plenty of risks – but those are generally the failed entrepreneurs, not the success stories.  The failures violate all kinds of established principles of new-business formation. New-business success is clearly correlated with the size of initial capitalization.  But failed entrepreneurs tend to be wildly undercapitalized.  . . . Writing a business plan is a must; failed entrepreneurs rarely take that step.  Taking over an existing business is always best; failed entrepreneurs prefer  to start from scratch. Ninety percent of the fastest-growing companies in the country sell to other businesses; failed entrepreneurs usually try to sell to consumers, and, rather than serving customers that other businesses have missed, they chase the same people as their competitors do.  The list goes on:  they underemphasize marketing; they don’t understand the importance of financial controls; they try to compete on price.  Shane concedes that some of these risks are unavoidable; would-be entrepreneurs take them because they have no choice. But a good many of these risks reflect a lack of preparation or foresight.

A pretty useful summary of tips for entrepreneurs. 

The full article may be accessed at (subscription required).

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