3.2 OPEN RISK TAKER

3.2.1   OPEN RISK TAKING PROPENSITY 

 

                                  

Figure 1 : Richard Branson message

Branson said that the failure of general risk-taking propensity to distinguish entrepreneurs from managers appears to be a major deviation from the widely held theory that entrepreneurs are the more moderate risk taker.  In fact, both entrepreneurs and managers who participated in this study are best described as moderate risk takers because their scores were clustered around the mean score reported by Kogan and Wallach in their original study. 

            In a another study, Sexton and Bowman found that students studying to be entrepreneurs score higher on the variables of autonomy, change, dominance, endurance, innovation and self-esteem.  They scored lower on level of anxiety, cognitive structure and performance. Sexton and Bowman found no significant difference in risk-taking propensity of entrepreneur students and those of the general student body.   It might be tentatively concluded that general risk-taking propensity is not a determinant in the decision to become an entrepreneur.   However, this study does not take into account the perceived probability of failure or of specific business and the perceived consequence of this failure.  Students might not be aware of the extensive costs of business failure. 

            It would appear from the studies performed that risk-taking propensity is not an accurate way of distinguishing entrepreneurs.   Their risk-taking propensity varies greatly according to the situation. If business ownership is omitted from the definition of entrepreneur, this would be allow inclusion of corporate entrepreneurs and would reduce risk bearing as a prime factor. 

  

3.2.2   RISKS THAT EVERY ENTREPRENEUR MUST TAKE

 

Risk-taking is almost synonymous with entrepreneurship. To start and support your own business, you’ll have to put your career, personal finances and even your mental health at stake.   For most, the prospect of making your own decisions and being in charge of your own destiny is worth it.  But if you’re going to be successful as an entrepreneur, you have to be prepared for the risks and challenges that come with it.

The following are six risks that every entrepreneur must take, from ideation to ongoing development:

1.    Abandoning the steady pay check.

Before you venture into the world of business ownership, you’ll first have to say goodbye to your current job, and in some cases, your career. Some people have the luxury of a backup plan like an option to resume your career in case things don’t go well in your independent business.   But for most starting entrepreneurs,the choice is a risky pluange. There’s no guarantee of your personal income, especially in the first few months and years of your company’s existence, and you’ll probably be too busy to secure or sustain an alternative line of income.

2.    Sacrificing personal capital.

Some entrepreneurs are able to start their ventures relying solely on external funding. That usually means a collection of angel investor contributions, government grants and loans, and results from crowd funding campaigns.   But many entrepreneurs also have to dive into their own bank accounts and personal savings to get things started.  You may not need to completely liquidate your nest egg, but you will have to front at least some personal money and that means abandoning, or at least diminishing, your safety net.

3.    Relying on cash flow.

                               

Even if you have a line of credit, securing a regular cash flow is difficult and stressful.  You can position yourself for a profitable year, but still struggle with the day-to-day necessities if your revenue doesn’t match or exceed your costs in a timely manner. Bills can add up quickly, and if you don’t have enough revenue to support your outgoing cash flow, you could run short of money for paychecks or be forced to dip into emergency funds.  Be prepared to address it daily, or at least weekly.

4. Estimating popular interest.

                                

No matter how much research you do or how many tests you complete, you’ll never be able to estimate popular interest in your business with perfect accuracy. People are somewhat unpredictable, which could put a giant hole in your otherwise sound plans.  Even when all the data appears to be in your favor, there’s a chance you’re overestimating the interest in your company, and if your projections are off, your entire financial model could implode.

5. Trusting a key employee.

                             

When you first start a business, you won’t have a full team of employees working for you. Instead, you’ll probably have a small, tight-knit group of people working tirelessly together in an effort to get things up and running.  You’ll have to put an overwhelming amount of trust in them, especially if they have special skills that are hard to find and are willing to start work at a lower salary than the industry standard.   For example, if you hire a single, experienced lead developer to work on your product over the course of a few months, you’ll need to have absolute trust in their ability to get the job done on time.  Otherwise, your timeline (and your product) could be fatally compromised.

6. Betting on a crucial deadline.

                            

Startups are, by nature, forced into strict timelines for their product launches and milestone goals.  Their finances are fragile, and their investors are eager to start seeing the wheels turning.  As a result, most entrepreneurs are forced to make multiple goals contingent on a handful of deadlines, and those deadlines become absolutely critical. Be prepared to stay up at night worrying about your ability to hit those deadlines, and coming up with contingencies if you cannot.

3.2.3   RICHARD BRANSON

For every successful entrepreneur such as Richard Branson who preaches taking risk, there is another who urges caution when doing something such as leaving a steady job to launch a new venture.  While you can always choose not to take risk, that means you’re essentially choosing not to be an entrepreneur. Risk and entrepreneurship aren’t for everyone. But there really isn’t a path to entrepreneurship that doesn’t include risk.

“To win, you have to bet, said Richard Branson”

For those who aren’t naturally adventurous or risk-takers at heart, being able to bet like risking your money, energy and ideas because it is a skill. Like any skill, it can be learned.  It gets easier when you watch others do it. Through practice and observation, we know we can teach tomorrow’s entrepreneurs to bet smarter and more often. But unlike practicing entrepreneurs whose wagers have real, lifelong consequences to families and industries, we teach taking risk in the comparative safety of a classroom.

. For high school students, these are usually huge emotional investments that help prepare them to take and manage future risks. By watching, doing and preparing, future entrepreneurs get more comfortable with risk.  They quickly become less nervous and more confident in their ideas and goals.  As they learn that they can also influence the outcome, a few blossom into risk tigers ; throwing more energy and passion behind their investments. Not everyone is Richard Branson ; the living caricature of a thrill-seeking maverick.   For the rest of us, that safe space to experience risk is essential.   It’s doubly essential for young people who may be experimenting with financial and business risk for the first time.

Figure 2 : Richard Branson 

Born on July 18, 1950, in Surrey, England, Richard Branson struggled in school and dropped out at age 16 - a decision that ultimately lead to the creation of Virgin Records. His entrepreneurial projects started in the music industry and expanded into other sectors making Branson a billionaire. His Virgin Group holds more than 200 companies, including the recent Virgin Galactic, a space-tourism company.  Branson is also known for his adventurous spirit and sporting achievements, including crossing oceans in a hot air balloon.

Figure 3 : Branson and staff Virgin Records

His first artist on the Virgin Records label, Mike Oldfield, recorded his single "Tubular Bells" in 1973 with the help of Branson's team. The song was an instant smash, staying on the UK charts for 247 weeks. Using the momentum of Oldfield's success, Branson then signed other aspiring musical groups to label, including the Sex Pistols. Artists such as the Culture Club, the Rolling Stones, and Genesis would follow, helping to make Virgin Music one of the top six record companies in the world.  Branson expanded his entrepreneurial efforts yet again, this time to include the travel company the Voyager Group in 1980, the airline Virgin Atlantic in 1984, and a series of Virgin Megastores.  By 1992, Virgin was suddenly struggling to stay financially afloat. The company was sold later that year to THORN EMI for $1 billion.

Branson's Virgin Group now holds more than 200 companies in more than 30 countries, including the United Kingdom, the United States, Australia, Canada, Asia, Europe and South Africa.  He has expanded his businesses to include a train company, a luxury game preserve, a mobile phone company and a space-tourism company, Virgin Galactic. Branson is also known for his sporting achievements, notably the record-breaking Atlantic crossing in Virgin Atlantic Challenger II in 1986, and the first crossing by hot-air balloon of the Atlantic (1987) and Pacific (1991).   He was knighted in 1999 for his contribution to entrepreneurship, and in 2009, he landed at No. 261 on Forbes' "World Billionaires" list with his $2.5 billion in self-made fortune, which includes two private islands.

In recent years, the ever-adventurous Branson has focused much of his attention on his space tourism venture. He partnered with Scaled Composites to form The Spaceship Company, which is currently developing a suborbital space plane, and, in April 2013, the project made an impressive leap forward with the test launch of Space Ship Two.  Branson was delighted by the success of his spaceship's first test, telling NBC News that "We're absolutely delighted that it broke the sound barrier on its very first flight, and that everything went so smoothly."  He expects to be finishing testing the craft by the end of 2013. By April 2013, more than 500 people had bought their tickets for Virgin Galactic's voyages.