The word "entrepreneur" is often linked with the word "risk."  However, if you were to go and ask entrepreneurs, they very well may say that they aren't any more adventurous than anyone else. After all, who isn't afraid of losing their own money?  But the fact is that entrepreneurs are risk-takers who are a bit self-deluded; a result of being over-confident and optimistic, which makes them not as sensitive to risk.

     This conclusion is based on the research of Jay Barney and an associate from the Fisher College of Business at Ohio State University, that used survey data.  They interviewed one group of entrepreneurs as well as a group of managers at large corporations with questions on two aspects of their work.  The number of participants was around 100.

     First, they asked five general questions.  There were to parts to each question, the first with only two possible answers (e.g. Which causes more deaths: cancer or heart disease?), the second asking them their level of confidence in the answer, from 50% (guessing) to 100% (completely sure).  The first part of the fifth question, answers were mostly the same, but the entrepreneurs were much more confident in their answers.

     The second part was a question on management decisions.  An imported piece of equipment has broken down and the participants were asked to choose a plan to replace the equipment.  The choices were: 1. Choose an American-made machine.  Your "friend" recently purchased this machine and hasn't had problems with it. 2. Purchase an imported machine, which statistics show has a lower chance of problems than its American-made counterpart.  The results show that about half of the entrepreneurs chose the American-made product while 90% of the managers chose the imported model.

     Of course, because of the small number of interviewees, the applicability of the results are not absolute.  So, we can be like the manager: cautious, not taking the results at face value.  However, at the same time this reveals at least a partial solution.  It is an innovative approach and may give us a new perspective.

     From the first part of the survey, we can see that the higher level of confidence in entrepreneurs is pretty much fact.  When they have answered incorrectly, they remain very confident, which means that their ability to evaluate risk is low.  The second part reaffirms this point.  Confident and optimistic people look at the probability of success, while cautious conservative people look at the probability of failure.  The confident type is likely to take a part as representative of the whole, possibly making a decision blindly.

     However, we must admit that using confidence and optimism to explain the above results is not comprehensive.  The two subjects' roles are different, so their decisions will naturally be different.  Entrepreneurs work to achieve success for themselves while managers simply do their job and maintain order.  Making a decision according to the least risk is the reasonable and responsible thing to do.  It is not surprising that 90% of the mangaers questioned chose the "safe" response. 

     Therefore, over-confidence and ignoring risk has led to many entrepreneurs taking heavy losses.  Similarly, we can say that the overly reasonable and "safe" manager very rarely brings in huge profits or seals big deals.  With nothing to risk, it is easy to take the chance on a big deal, but once the life of a successful company is in one's hands, it is only logical to make the reasonable decision. The idea of roles deciding behavior means that neither the manager or the entrepreneur can replace one another.  The entrepreneur must be the risk-taker to have success, but the manager also has the responsibility to maintain that success.

     Is it true there are natural businessmen?  This is worth exploring, but one thing that is certain is that the experiences and education that a person receives decide whether that nascent ability comes out.  A person shown encouragement and tolerance may explore the posibilities, while someone with restricted and protected life may look for a way to avoid a problem.  The former may experience a number of set-backs before maturing, while the latter may end up having to overcome many personal difficulties before he can act freely.

     Here is a simple, yet extreme case.  From kindergarten, the Chinese educational system requires a child to be good, obedient and modest.  If a child receives a 95% on a test, he might say "not to well," because he did not receive a full score.  If an American student receives a 65%, he might say that he did really well, because American education is based in encouraging children. 

     There is not doubt that the American educational system increases a child's confidence, but most will come across a very difficult time in their lives.  One day, many children will realize that they are not as good as they thought they were or as good as their parents and teachers claimed.  If they can survive such trials, there is a good chance that they will come out confident and able.

     Chinese children also go through trials.  One day, they will discover that their entire lives have been planned by someone else, requiring them to be obedient and be controlled.   They will realize that the people to which they have been obedient were the ones who were not obedient and docile.  The process from being controlled to being in control is a course of mental emancipation.  Given a blue sky, this newly found confidence will naturally take off.  In the heart of every Chinese person is a pride and a wish to excel.

     But shackels are shackels and taking ones own path is easier said than done.

     In the summer of 1994, during the annual conference of the American Management Association, Tian Suning was in attendance to make contacts for the newly established AsiaInfo.  Many of the Chinese at the conference, including this author, never thought that this "undutiful" kid would become a successful entrepreneur.  As an "obedient" Chinese he should have done post-Doctoral studies, taken an official professorship and worked hard until retirement.  But he was determined to build his own company and ended up taking the Internet to China.

     The Internet has created a new generation of Chinese entrepreneurs.  While it has broken the shackels of "obedience," it is to these shackels that we owe our perseverence.

     Tian Suning later left AsiaInfo to become a manager of China Network.  This might not be explainable using our original theories, but we know what to research.  As for those who are both entrepreneurs and managers, what kind of attitude to they have toward risk management?  Can the two exist together?

http://finance.sina.com.cn/leadership/CXOconduct/20050916/12051974298.shtml