Risk-takers fail more in business
Posted: Sun Jan 19, 2025 10:16 am
There is a widespread myth that entrepreneurs must take risks and that the most successful entrepreneurs are risk-takers. However, several studies have shown that taking risks can be more harmful than beneficial to the future of a business.
One of these studies sought to test the hypothesis that people who are more tolerant to risk are more likely to become business owners and have a higher return from doing so. The result found showed the opposite: that those who tend to take risks end up obtaining less interesting results in their businesses.
It seems contradictory to the classical theory of lithuania phone numbers innovative entrepreneurship and in fact it is, since the analysis involved a considerable universe of people and businesses of all types and sizes.
In these cases, it was expected that the so-called lifestyle businesses, which are simple, not very innovative and in which entrepreneurs take less risk, tend to survive longer, but always in borderline performance situations, but not with superior performance.
But that's not what researchers Hans K. Hvide of the University of Bergen in Norway and Georgios A. Panos of the University of Stirling in the UK found when they looked at investment data from 400,000 Norwegians.
They found that those who invested in stocks – which is a higher risk investment than savings, for example – are 50% more likely to become business owners.
And companies started by these people, on the other hand, have 25% lower sales performance and 15% lower return on assets than those started by less risk-tolerant people.
The researchers considered that this probably occurs because people who accept risk are also willing to accept a lower return, knowing that this can occur when taking more risks.
But what lessons can we learn from this research? That one should not take risks in business? Not necessarily. What one should seek, when undertaking, is to try to understand the risk associated with the initiative and seek to mitigate the factors that could lead to business failure.
This is done through research, information gathering and preparation by the entrepreneur. Those who act solely based on their own feelings run greater and sometimes unnecessary risks.
On the other hand, entrepreneurs who take few risks may miss out on great business opportunities. It is worth noting that taking risks is part of the entrepreneurial process, but it is up to the entrepreneur to decide how much risk he or she is willing to accept and, with that, increase his or her chances of success or face the consequences of failure.
Are you more risk-tolerant or do you prefer clearer, more predictable scenarios? Remember that there is no right or wrong, but depending on the moment and the window of opportunity presented, risk aversion or tolerance can define the future of your company.
One of these studies sought to test the hypothesis that people who are more tolerant to risk are more likely to become business owners and have a higher return from doing so. The result found showed the opposite: that those who tend to take risks end up obtaining less interesting results in their businesses.
It seems contradictory to the classical theory of lithuania phone numbers innovative entrepreneurship and in fact it is, since the analysis involved a considerable universe of people and businesses of all types and sizes.
In these cases, it was expected that the so-called lifestyle businesses, which are simple, not very innovative and in which entrepreneurs take less risk, tend to survive longer, but always in borderline performance situations, but not with superior performance.
But that's not what researchers Hans K. Hvide of the University of Bergen in Norway and Georgios A. Panos of the University of Stirling in the UK found when they looked at investment data from 400,000 Norwegians.
They found that those who invested in stocks – which is a higher risk investment than savings, for example – are 50% more likely to become business owners.
And companies started by these people, on the other hand, have 25% lower sales performance and 15% lower return on assets than those started by less risk-tolerant people.
The researchers considered that this probably occurs because people who accept risk are also willing to accept a lower return, knowing that this can occur when taking more risks.
But what lessons can we learn from this research? That one should not take risks in business? Not necessarily. What one should seek, when undertaking, is to try to understand the risk associated with the initiative and seek to mitigate the factors that could lead to business failure.
This is done through research, information gathering and preparation by the entrepreneur. Those who act solely based on their own feelings run greater and sometimes unnecessary risks.
On the other hand, entrepreneurs who take few risks may miss out on great business opportunities. It is worth noting that taking risks is part of the entrepreneurial process, but it is up to the entrepreneur to decide how much risk he or she is willing to accept and, with that, increase his or her chances of success or face the consequences of failure.
Are you more risk-tolerant or do you prefer clearer, more predictable scenarios? Remember that there is no right or wrong, but depending on the moment and the window of opportunity presented, risk aversion or tolerance can define the future of your company.