MythConceptions - Entrepreneurs are Risk Takers

"If passion drives you, let reason hold the reins." ― Benjamin Franklin

In this time of crisis, all of us have been pondering on many important questions of our life. The silver lining of this pandemic is the opportunity to think, research and evaluate the choices we will make in our life once this crisis is over.

I think this might be a good time for entrepreneurs to review the basic understanding of some principles about entrepreneurship that we regularly see on the mainstream media.

I am going to be exploring some famous myths of entrepreneurship. I will be examining academic research, analyzing the effects of the particular myth along with some famous real life examples that we all can relate to.

Are Entrepreneurs Risk Takers?

Like most people, I always thought of an entrepreneur as someone who risked it all to pursue their passion no matter what the cost. Someone who sacrifices all kinds of comfort for their passion. Someone who quits their job, sleeps 5 hours a day on a couch, works from a garage and eats at cheap places to make their ends meet all in the name of devotion and commitment to their passion. They risk-it-all without any security or backup plan right? As the popular saying goes “an entrepreneur is someone who jumps off a cliff and builds a plane on the way down”

Well, turns out, this is one of the biggest myths out there. Why this myth persists is still a question that needs to be answered but nonetheless, most of us acknowledge this myth. Probably because it’s a lot more thrilling to tell that story. Maybe we love to idolize the exceptional people who drop out or go broke to realize their dreams. It also gives us an excuse to not be that person. Looking at the life of someone like Bill Gates, we can say ‘he left Harvard, I could never do that,’ leaving out a huge part of the story (that I will come back to, at the very end of this analysis).

When I was first exposed to the notion of entrepreneurship, I couldn’t help but feel quite fearful to the fact that you would have to risk your stability and go all-in if you wish to be successful. I always thought about how entrepreneurs take care of their basic necessities? What happens if they get really sick? What if a friend or family member needs their help? What if it doesn’t work out like they planned? What happens to the failed entrepreneurs?

I came to the conclusion that maybe successful entrepreneurs are just wired differently. These people don’t feel the same way normal people do and maybe I need to stop worrying about all these things and just jump in.

Well, SUCCESSFUL ENTREPRENEURS ARE NOT RISK-TAKES!

Take a moment to think about these three examples before we dive deep into the topic:

1. Sara Blakely: She gets the idea of footless pantyhose. She doesn’t leave her job to go all in. She keeps her job for two years. In a few years, she creates her own company “Spanx” and becomes the youngest self-made billionaire

2. Markus Persson: A programmer who liked to create games as a hobby. He release his own game in 2009 but instead of risking it all, he keeps his day job for an entire year before he decides to commit full-time to his own game. Minecraft later becomes one of the best-selling game of all time and he would sell it for $2.5 Billion.

3. Steve Wozniak: Inventor of the Apple I computer. He starts a company with Steve Jobs in 1976. Surprisingly, instead of taking a huge risk, he kept his full time engineering job at Hewlett-Packard for a whole year while working on apple at the same time. “I still intended to be at that company forever,” Wozniak reflects.

These examples are just the tip of the ice-berg. Recreating the steps of successful people has always been a momentous task. A lot of variables play out different results in various different circumstances. We might as well learn something that may be completely contrary to popular belief if we could only study these people during their journey towards success.

In 2014, Joseph Raffiee and Jie Feng published a research in the Academy of Management Journal. In their research they as the question: How keeping a day job influences an entrepreneur’s rate of survival?

In their research, they tracked a group consisting of over five thousand people who became entrepreneurs. The study stretched for almost 14 years and the results showed the exact opposite of the common belief that successful entrepreneurs are risk taker. Contrary yo popular belief, the study concluded that the entrepreneurs who did not quit their jobs had 33% lower odds of failure than those who did quit.

Now that we have an academic backing, let us take a look at this in accordance with some simple business sense.

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” This quote is from "Warren Buffet", one of the most successful businessmen in the world right now. According to Warren, the most successful businesses are those which optimize for the long term. Now think about this:

Strategic decisions are at the very core of creating a successful company . Your financial and emotional support is the most important thing your business needs at its initial stage. This way you can make thoughtful decisions and wait for the right time and right opportunity to grow your business. Stability (keeping a day job) will help you make rational long-term decisions. If you follow the media and quit you job, your weak financial state will force you to take bad shot-term decisions and ultimately handicap your business.

Now that we have established an argument based on some analysis, let’s dissect some famous real life examples of successful personalities in order to properly bust this myth:

1. T.S. Elliot: A Nobel Prize winner in poetry. After publishing one of his most successful work “The Waste Land”, Elliot kept his Bank Job for three years, rejecting the idea of taking a huge risk by going all in. Even afterwards, he only switched his job to provide stability in his life. He would go on to keep this job for the next 40 years, writing poetry in the side.

1. Pierre Omidyar: After creating an online marketplace in his free time, he would keep working as a computer programmer for the nine months until he started earning more from eBay than his job.

1. Henry Ford: Employed under Thomas Edison. It was only after he was promoted to chief engineer that he had enough time and money that he was able to start his automotive empire. His job have him the monetary safety essential to try out his innovative ideas for a car. Even after he built a carburetor and earned a patent for it, he still went on working his daily job for a year.

1. Larry Page and Sergey Brin: Although, these Google founders worked out how to radically improve how the internet search worked in 1996, they did not want to leave their Ph.D. at Stanford until 1998. “We almost didn’t start Google,” Page says, because we “were too worried about dropping out of our Ph.D. program.” At one point in 1997, they even tried to sell their company saying that Google was disturbing their research and studies. Lucky for them, the buyer rejected the offer of $2 million.

1. John Legend: One of the few people to win an Emmy, Tony, Grammy & Oscar, his first album was released in 2000. Instead of going all in, John kept working as a consultant at his day job while performing in his spare time at night.

1. Stephen King: Described as the “King of Horror”, he worked as a teacher, janitor, gas pump attendant and an industrial worker for almost seven years after writing his first story. He had written 3 novels before “Carrie” but “Carrie” was the first one to get published. He decided to go all-in after Carrie was published which sold almost thirty thousand copies.

1. Brian May: He co-founded Queens in 1970 while he was doing his Ph.D. in astrophysics. He didn’t drop out until four years later to go all in with Queens. He would go on to compose “We Will Rock You”

And what about Bill Gates, celebrated for dropping out of Harvard to start Microsoft? In his second year at Harvard, Gates sold a new software. He would avoid going all in so soon. He would stay at Harvard for one more year. Even then he would not risk it all by dropping out, instead, he would apply for a leave of absence to be formally approved by the university so that he may come back to resume his studies should Microsoft fail. He balanced his risk portfolio by getting a approved leave of absence from Harvard – and by having his parents bankroll him. “Far from being one of the world’s great risk takers,” entrepreneur Rick Smith notes, “Bill Gates might more accurately be thought of as one of the world’s great risk mitigators.”

These facts may be eye-opening for many because according to the media, successful entrepreneurs love risk. The fact that these stories are not told in their entirety on mainstream media still needs to be answered. I implore you to watch this Ted Talk on why Adam Grant left the opportunity to invest in a billion dollar startup “Warby Parker”. Adam has since researched this topic extensively and he went on to write his bestselling book “Originals” which was the main inspiration behind this blog post.

The takeaway is simple: The more risk-averse you are, the better entrepreneur you can become.

“Many entrepreneurs take plenty of risks – but those are generally the failed entrepreneurs, not the success stories.”

― Malcolm Gladwell