Risk: Losing Your Loss Aversion
#Entrepreneurs — 21.12.2016

Risk: Losing your loss aversion

Thriving in uncertainty is fundamental to entrepreneurship, but what kind of a person succeeds in the start-up sector and does that early thirst for risk abate as their wealth grows and their ventures mature?

“For Elite Entrepreneurs, risk is not a factor to shy away from”

 

BNP Paribas Wealth Management Global Entrepreneur Report

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With more than half of new businesses failing in the first five years, what kind of a person quits a steady job to gamble everything on launching their own business?

Those with courage, self-confidence and a particular appetite for courting risk are most likely to take the plunge.

Risk in business terms is a slippery concept to define, but entrepreneurs’ willingness to embrace it sets them apart from the typical wage earner. Despite well-known statistics to the contrary, more than nine in 10 entrepreneurs report being confident their venture will succeed.

There’s a lot more at stake when you’re an entrepreneur. After a business failure, you’re at risk of depression, divorce and being an outcast,” says Mirjam van Praag, Maersk Mc-Kinney Møller Professor of Entrepreneurship at Copenhagen Business School. Van Praag’s finds entrepreneurs less loss averse – rather than less risk averse – than the norm.

For loss-averse people, an increase in wealth would provide less happiness than the commensurate level of despair they would feel at losing the same amount of money; entrepreneurs think differently.


Embracing risk

That tallies with the findings of 2017 BNP Paribas Wealth Management’s Global Entrepreneur Report, which interviewed 2,650 elite entrepreneurs worldwide.

Respondents’ average net worth was $14.9 million with about three-quarters feeling their entrepreneurial activities represent a more than moderate risk. About the same number use a similar description to describe their investment portfolio.

For this audience, risk is not a factor to shy away from. To an extent entrepreneurs embrace risk because they expect that if it is managed well then the outcome is greater reward,the report states.

While only 6% of serial entrepreneurs quizzed in the report said risk-taking was the most important factor in their businesses’ success, 73% said it was nonetheless an important or very important factor.

When asked what was the most important factor, 12% cited intellect, 11% luck and 10% technical skills.

When I was much younger I didn’t even think about it being a risk, I just did it and I think there’s a lot to be said about being young and fearless,” says Dany Farha, a serial entrepreneur, co-founder and chief executive BECO Capital, a Dubai-based venture capital firm that has invested in some of the Middle East’s most successful tech start-ups. “I didn’t think about risk mitigation, if I felt really passionate about doing something and fixing a problem, I went ahead and did it.”

 

73%

of Serialpreneurs say risk-taking is important or very important