Proactivity and Calculated Risk
Calculated Risk Taking
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Gagnon, M. A., (2021). Entrepreneurship: Calculated Risk Taking. In SAGE Skills: Business. , [https://
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Source: Tetra Images/via Getty Images.
Acting upon opportunity presents certain risks and uncertainties. However, not taking action is a certain path to not fulfilling one’s potential. Counter to popular stereotypes, exceptional entrepreneurs are not brazen risk takers. Rather, they are very good at taking thoughtful, calculated risks. Watch the video below about entrepreneur Jaspreet Tandon of Downtown Liquors in Washington, DC. On International Women’s Day, Jaspreet decided to give away a thousand of bottles of wine at the cost of a penny to local women. The upfront cost of this effort was significant, and Jaspreet was not sure he would recoup it. However, his risk paid off, and he ended up garnering significant press as well as hundreds of new, loyal customers.
Video 1. Downtown Liquors
Now, test your personal approach to risk with the following scenario.
Scenario
You’ve been asked by one of your closest friends to join her start-up. She has won several student competitions and has a year’s worth of funding and sees promise with a follow-up round from 2–3 angel investors once her products start to sell. She has filed for a patent application with her prototype and has secured modest manufacturing and office space from her aunt. There is significant momentum and publicity around her start-up, and potential customers love her product idea. Your friend has offered to pay you USD 50,000, offer 10% earn-in equity that accrues at 3%, 6 months, 6% in 1-year, and the full 10% at the end of year 2. The company will cover your basic health insurance. You are both graduating this semester, and you heard from the company where you last interned that they wish to hire you full-time for USD 75,000 a year with full benefits. The only condition with the company job is that you will be required to move away 1,600 km (1,000 mi) from home.
What course of action would you pursue?
- a.I would join the
start-up.
Feedback: This is a viable option, especially if the business does become successful, which could set you up for an entrepreneurial career and help you generate wealth early in your career. The downside is that you will make less money at first and that the company may fail (it’s estimated that 50% companies fail in 2 years and 80% fail in 5 years). You could also be behind if you chose to return to traditional employment.
- b.I would take the
full-time job with the company where I
interned.
Feedback: This may be a safer bet. You will be assured more money in the short run plus you will gain validated work experience. However, long-term corporate employment is not a guarantee and you could be missing out on an experience and opportunity of a lifetime.
- c.I would decline both
offers and find a job near home.
Feedback: This option may be the riskiest since it stifles opportunity by establishing constraints. However, some people may have personal obligations that override career choices.
- d.I would ask my friend
to consider having me work for her part-time while
I work the company job with the intent of joining
full-time when the start-up is more
developed.
Feedback: This hybrid approach may help you gain initial credentials and earn more money initially. This also places less financial burden on the business and facilitates your ability to take part and perhaps secure equity. Many mid-career entrepreneurs work on their ventures part-time initially to de-risk while earning an income to maintain their livelihood.
Consult the Experts
Do you want to know more about the differences between risk, uncertainty, and ambiguity? Risk can be quantified like the probability of heads versus tails with a coin toss, uncertainty cannot be quantified, and ambiguity allows for several interpretations and potential courses of action in an uncertain environment. The following readings are helpful:
- Zapien, N. M. (2017). Decision science, risk perception, and infidelity. SAGE Open.
- Huang, Y., & Yang, C. (2020). A metacognitive approach to reconsidering risk perceptions and uncertainty: Understand information seeking during COVID-19. Science Communication, 42(5), 616–642.
- Chawla, C., & Jones, T. A., (2021). Launching a venture during a pandemic: SLAB outdoors LLC. In SAGE Business Cases. SAGE Publications, Ltd.
