What makes entrepreneurs great? 
 
A ton of research exists of this question, and two traits that frequently come up are low risk aversion and a high tolerance for ambiguity.
 
Breaking that down a bit…
 
Risk is something we intuitively understand as betting on the unknown. However, the specific definition of risk applied by economists (esp those of the Knightian variety) is directly linked to quantifiable expected outcomes. For example, a horse-racing track gives you the odds of your horse winning, and you know/can control the amount of money you will wager on the horse. With that information, you can calculate the expected outcome of betting lots of money on the long shot (hint: it’s probably a very small number).  You are taking a risk, but its a relatively known and well-understood risk.
 
Ambiguity, on the other hand, is tied to uncertainty, which Frank Knight was sage enough to help us understand as situations in which the odds of winning and expected outcomes can’t be quantified. So having a tolerance for ambiguity is about an ability and willingness to move forward and make decisions despite lots of unknowns.
 
Ok, good stuff so far. But are both required for entrepreneurial success? Authors like Amar Bhide have shown us, using empirical research, that a willingness to take big risks is not something that most entrepreneurs are endowed with. Real-life entrepreneurs start with a simple idea that requires little investment and, therefore, does not constitute a major risk. To boot, entrepreneurs, even those who have founded Inc 500 companies, have low opportunity costs. They are generally not turning down great job opportunities and big money elsewhere in order to start their business. They tend to have limited experience/skills and often are creating a business as much out of necessity and a desire to be self-employed as out of raw ambition.  In fact, a low risk aversion doesn’t seem to be necessary for entrepreneurial success until massive inflows of cash are needed to scale and/or the business has grown to a size where future failure would destroy the entrepreneur’s small fortune.
 
What about a tolerance for ambiguity? That does seem critical, as great entrepreneurs are generally operating in new and developing markets where unknowns abound and effective opportunism often determines success.
 
But there is one piece missing here – a critical one – that ties into that idea of opportunism. On the one hand, being opportunistic relates to making decisions and moving forward despite perfect information and a coherent strategy. It requires a leap of faith and tolerance for ambiguity. 
On the other hand, opportunism is very much “destructive.” It often requires throwing out a formulated plan of attack and way of thinking about the entire business. It requires a shamelessness and lack of pride in opinion/authorship that allows the entrepreneur to wholly re-design his/her company around new information and opportunities. Those are unique skills and traits that fall under the categories of “humility” and “adaptability” that traditional ideal types of the entrepreneur generally fail to fully explore and consider.
 
The lesson here is this…If you are interested in starting your own business but are the kind of individual who has a hard time changing course once you’ve committed (publicly or privately) to a plan, you’ve got a problem. It’s not a downside that can’t be overcome, but it’s one that needs to be acknowledged, understood, and compensated for if you hope to make your company a success.
 
 

Posted via email from Human Ventures

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