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How Entrepreneurs Can Successfully Manage Risk

How Entrepreneurs Can Successfully Manage Risk

Isn’t risk mitigation contrary to the ethos of being an entrepreneur? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Touraj Parang, Silicon Valley dealmaker, President and COO at Serve Robotics, which was spun out of Uber and author of “Exit Path: How to Win the Startup End Game”, on Quora:

Smart risk mitigation is actually the distinguishing characteristic of successful entrepreneurs, but the relationship between risk and entrepreneurship is often misunderstood.

First note that risk mitigation is not the same as risk avoidance. A healthy appetite for risk is certainly necessary to consider starting a new venture. But risk taking by itself does not lead to success. Pure risk taking is gambling, not entrepreneurship. Entrepreneurs don’t achieve their goals by taking blind, reckless risks; they do so by taking smart, calculated risks.

While risk and reward are correlated, more risk does not lead to more reward. To obtain the reward, you will need to tilt the odds of success in your favor by mitigating the risks. Venture capitalists and investors mitigate risks through their portfolio strategy. Savvy entrepreneurs mitigate risks by conducting experiments and creating strategic optionality.

In his book Originals, organizational psychologist and Wharton professor Adam Grant recounts stories of many successful entrepreneurs (e.g., Bill Gates, Pierre Omidyar, Sara Blakely, and the founders of Warby Parker), who all went to great lengths to hedge their risks as much as they could before committing full-time to their respective startups.

Risk mitigation strategies reduce stress, which also makes success more likely. There is mounting evidence about the toll excessive risk and stress have taken on the physical and mental health of entrepreneurs, hurting their ability to innovate. Innovation is not forged in overburdened and stressed out entrepreneurial brains; instead, it requires the head space for creativity and strategic thinking.

This question originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world.

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