QS Study

Risk-taking behavior in Entrepreneur

As the entrepreneur contracts for an assured supply of the various inputs for his project, he incurs the risk of paying them off whether or not the venture succeeds. Risk bearing and entrepreneurship are inseparable from each other. Risk, as an attribute, affects entrepreneurial behavior.

However, there is no declaration of profit to the entrepreneur. It may be pointed out that the possibility of unlimited ruin may be rare as the entrepreneur does everything within his control to de-risk the business. For example he may enter into prior contract with the customers of his production. So much so that he may just be contract manufacturer or marketer of someone else’s products!

Almost every business decision requires some degree of risk-taking. When an entrepreneur makes the decision to leave her paid job and start her own company, for example, she’s risking her financial health. Expanding a business to a second store or another country carries the risk of failure and lost profits.

In practice, for example, when a person quits a job to start on his own, he tries to calculate whether he or she would be able to earn the same level of income or not. To an observer, the risk of quitting a well-entrenched and promising career seems a “high” risk, but what the person has taken is a calculated risk. The situation is similarly to a motorcyclist in the ‘ring of death’ or a trapeze artist in circus.

While the spectators are in the awe of the high-risk, the artists have taken a calculated risk given their training, skills, and of course, confidence and daring. It is said that the entrepreneurs thrive on circumstances where odds favoring and against success area even, that is 50:50 situations. They are so sure of their capabilities that they convert 50% chances into 100% success. They avoid situations with higher risks as they hate failure as anyone would do; they dislike lower risk situations as business ceases to be a game/fun! Risk as such more than a financial stake, becomes a matter of personal stake, where less than expected performance causes displeasure and distress.

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