Entrepreneurs & Risk-Taking

At the recent TEDx Lansing, “Biggby Bob” – aka Bob Fish, entrepreneur and founder of Biggby Coffee – said the following about entrepreneurial risk-taking (I paraphrase, but you find the YouTube link for his talk at the end of this post):

Sure, entrepreneurs take risks. But they don’t see it that way. They have knowledge about a particular market or problem that tells them that what they are planning to do will work. Obstacles have to be overcome, sure, but they are confident they will succeed if they work hard. From the “outside” the entrepreneur’s actions look like risk-taking. But we’re not gambling; we know what we’re doing.

Bob managed to weave together three key themes regarding entrepreneurial action in his brief comment. Trust the entrepreneur to say it succinctly. In typical academic fashion, I’ll pull these apart a bit in order to explain why I agree with him.

Theme 1: Risk

From a “macro” perspective of society-as-a-whole, we know that our current economic resources, technology, and capital both provide us with opportunities and pose risks. Unlike gambling – where the probabilities are often known – the risks posed in the economic realm are often unknown. In fact, the costs of those risks are unevenly spread among the members of society: at any point in time, some of us are greater risk than others, just as some have a greater opportunity to benefit from current resources or technology than others.

Theme 2: Disbursed Knowledge

The knowledge of the world doesn’t reside on a computer hard drive somewhere. It resides in the minds of human beings, who share a lot of knowledge, but also individually know things that others don’t. The dispersion of knowledge is particularly true of practical knowledge – the knowledge of how to do a particular thing in a particular place. When Biggby Bob says that entrepreneurs know things that help them to be confident about their success, he is talking about this disbursed knowledge. The entrepreneur sees the opportunity because of their particular vantage point, which includes their general and particular knowledge.

Note: Disbursed knowledge is one of the reasons why simply increasing the number of highly educated people (even in the sciences and engineering!) doesn’t translate obviously into innovation and entrepreneurship. A recent Kaufman Foundation report says it well: while the general level of knowledge that entrepreneurs need continues to grow, they are no more likely to have higher degrees than anyone else.

Theme 3: Opportunity Taking and Making

Does the entrepreneur take an opportunity that others don’t see, or do they make the opportunity? Both are possible, of course, but I’m inclined to see entrepreneurship in terms of opportunity-making. Opportunities don’t sit around like $20 bills on a sidewalk. The hard work of entrepreneurship is figuring out what the opportunity really is, and making it happen. This does not make the entrepreneur a shyster or gambler. Their particular knowledge and personal outlook on life poses a question to them: is X possible? Sometimes X doesn’t even turn out to be the thing that adds value; remember the entrepreneurial code: fail fast, learn your lessons, and move on. But pursuing X leads them either create a better X, or to figure out that what was really needed was Y.

Putting all three themes back together, we can say that the entrepreneur figures out how to be at the place where an opportunity can be created to add value that others appreciate.

What we cannot say, however, because we don’t really know, is whether the entrepreneur’s actions will increase or decrease our society’s exposure to the uncertainties of life. Even if an innovation reduces some risk, it may create new ones we didn’t know about before.

Bob Fish on TEDx Lansing

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This entry was posted on Saturday, May 29th, 2010 at 12:29 pm and is filed under entrepreneurship, TEDx Lansing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.