No Such Thing as Risky Business for Entrepreneurs

Entrepreneurs and success

Ask most people how entrepreneurs are different from the rest of the population, and you're likely to hear: "Entrepreneurs are risk-takers."

Not so, says Anne Marie Knott, assistant professor of strategy at the Olin School of Business at Washington University in St. Louis. Entrepreneurs are just as sensitive to uncertainty as anyone. In fact, several studies suggest that entrepreneurs are more risk-averse than other people. So why do they risk losing their shirts by starting a business? They have an overdeveloped sense of confidence that that they can beat the odds, Knott says.

"There are two dimensions of uncertainty," Knott says. "There are things that the entrepreneur cannot control, such as floods or the economy. We call that market-demand uncertainty. Then there are things they think they can control, such as their skills and business acumen, and that's called ability uncertainty."

Considering these two dimensions, a pattern emerges of when an entrepreneur will or won't enter a market, Knott says. If market demand is highly uncertain